A company produces 1,000 packs of chicken feed per month. Sales price is $4.00 per pack. Variable cost is $1.50 per unit, and fixed costs are $1,800 per month. Management is considering adding a vitamin supplement to improve the value of the product. The variable cost will go up from $1.50 to $1.90 per unit, but there will be no change in fixed costs. The company will price the new product at $4.25 to compete with other producers. If they do so, how will this affect operational income?

Question

Quizplus · Accepted Answer

A) Calculations:
(4.00 × 1,000) - ($1.50 × 1,000) - $1,800 = $700
(4.25 × 1,000) - ($1.90 × 1,000) - $1,800 = $550
$550 - $700 = ($150)

A Company Produces 1,000 Packs of Chicken Feed Per Month