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:

China

A country in East Asia, the world's most populous nation, known for its rich history and significant economic and political influence globally.

Compulsory Measures

Mandatory actions or regulations enforced by an authority, often to ensure safety, compliance, or order, from which there is no option of opting out.

Economic Incentives

Financial motivations or rewards designed to influence the behavior of individuals, businesses, and governments toward desired outcomes.

Family Planning Program

A program designed to provide information, methods, and services to individuals to help them choose how many children to have and the timing of their births.