Wrobbel Corporation Produces and Sells a Single Product

question 177

Essay

Wrobbel Corporation produces and sells a single product.Data concerning that product appear below: Fixed expenses are $307, 000 per month.The company is currently selling 6, 000 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by $2.Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 200 units.What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected? Show your work!

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Definitions:

Profit

The financial gain realized when the revenue generated from business activities exceeds the expenses, taxes, and costs incurred in sustaining business operations.

Contribution Margin Ratio

A financial metric that measures the proportion of revenue that exceeds variable costs, indicating how much revenue contributes towards covering fixed costs and generating profit.

Variable Expenses

Costs that change in proportion to the level of activity or volume of output in a business.

Fixed Expenses

Costs that do not change in total regardless of the level of production or sales activity, such as rent and salaries.