This question is to be considered independently of all other questions relating to Marchman Corporation. Refer to the original data when answering this question.
-Management is considering using a new component that would increase the unit variable cost by $2. Since the new component would increase the features of 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?
A)decrease of $9,200
B)increase of $1,200
C)decrease of $1,200
D)increase of $9,200

Question

Quizplus · Accepted Answer

The increase in sales by 200 units will generate additional revenue, but the cost per unit will also increase by $2. The net effect on income will depend on the contribution margin per unit. If the contribution margin per unit is greater than $2, the overall effect will be an increase in net operating income.

This Question Is to Be Considered Independently of All Other