Roadrunner Manufacturing Produces Item Q with Variable Manufacturing Costs of $16/unit

question 256

Essay

Roadrunner Manufacturing produces Item Q with variable manufacturing costs of $16/unit. The selling price of Item Q is $20/unit. The fixed manufacturing overhead cost is $75,000. A normal production run includes 150,000 units. Roadrunner Manufacturing has discovered an additional process to change Item Q into Item QR. Additional costs are estimated at $3/unit. Item QR would sell for $24/unit. Additional fixed manufacturing overhead costs of $4,500 would be incurred if Item QR is produced. There would be no change in the number of units produced.
By what percent would Roadrunner Manufacturing's operating income improve if the change is made?

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Definitions:

Box and Whisker Plot

A graphical representation of data that shows the distribution of data points based on a five-number summary: minimum, first quartile, median, third quartile, and maximum.

Five-number Summary

A statistical summary that includes the minimum, the first quartile, the median, the third quartile, and the maximum of a data set.

Z-scores

Standardized scores that indicate the number of standard deviations an element is from the mean of its distribution.

Absolute Value

A number's distance from zero on the number line, without considering its direction; denoted by two vertical bars on either side of the number.