Davis Naturals manufactures bulk quantities of cleaning fluids.It currently sells 1,300 containers a month at a sales price of $16 per unit.If a new fragrance is added,$18 per unit could be charged for the improved product.It would cost a total of $1,000 per month to make that alteration.Operating income would ________.

Question

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Currently, the company is generating a monthly revenue of $20,800 ($16 x 1,300). If the new fragrance is added, the company can increase the price to $18 per unit, resulting in monthly revenue of $23,400 ($18 x 1,300). The cost of making this alteration is $1,000 per month, which will be considered as an additional cost.

The total operating income before making any changes is $20,800. After making the change, the total cost will increase to $21,800 ($1,000 + $20,800). Therefore, the new operating income will be $1,600 higher ($23,400 - $21,800) than the previous amount. So, the correct answer is C, increase by $1,600.

Davis Naturals Manufactures Bulk Quantities of Cleaning Fluids