This question is to be considered independently of all other questions relating to Boenisch 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 $3. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change?
A)decrease of $2,000
B)increase of $26,000
C)increase of $2,000
D)decrease of $26,000

Question

This question is to be considered independently of all other questions relating to Boenisch 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 $3. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change?
A)decrease of $2,000
B)increase of $26,000
C)increase of $2,000
D)decrease of $26,000

Quizplus · Accepted Answer

Using the contribution margin approach, the increase in unit variable cost by $3 will decrease the contribution margin per unit by $3. However, since the marketing manager predicts that monthly sales would increase by 400 units, this will bring in additional contribution margin of (400*($18-$15)) = $1,200. Therefore, the overall effect on monthly net operating income will be an increase of $1,200 - $1,000 (additional cost due to the new component) = $200.

This Question Is to Be Considered Independently of All Other