Asked by Keeva Szeto on Jun 20, 2024
Verified
Naumann Corporation produces and sells a single product. Data concerning that product appear below:
Fixed expenses are $180,000 per month. The company is currently selling 1,300 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by $54. Since the new component would improve 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 if fixed expenses are unaffected?
Unit Variable Cost
The cost of producing one unit of a product or service which varies with the level of production or sales.
Monthly Sales
The total value or volume of sales transactions that a business completes within a single month, often used to assess performance trends.
Net Operating Income
A company's income after operating expenses have been deducted but before deducting interest expenses and taxes.
- Predict the outcome of net operating earnings by analyzing the dynamics in sales activity, pricing policies, variable financial commitments, and fixed charges.
- Incorporate changes within the business sphere (like adjustments in sales incentives, variations in prices, and revisions in advertising budget) to estimate their effect on net operating income.
Verified Answer
Because fixed expenses are not affected by this change, the change in net operating income will be equal to the change in total contribution margin.
Learning Objectives
- Predict the outcome of net operating earnings by analyzing the dynamics in sales activity, pricing policies, variable financial commitments, and fixed charges.
- Incorporate changes within the business sphere (like adjustments in sales incentives, variations in prices, and revisions in advertising budget) to estimate their effect on net operating income.
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