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Boenisch Corporation produces and sells a single product with the following characteristics: The company is currently selling 8,000 units per month. Fixed expenses are $406,000 per month. 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

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Answer: Increase by $2,000

Explanation:

Current net operating income is:

= Contribution margin - Fixed costs

= (68 * 8,000) - 406,000

= $138,000

If component is added, Variable cost increases by $3 to $105. New contribution margin is:

= 170 - 105

= $65

Units sold increases by 400 to 8,400.

Net operating income becomes:

= (65 * 8,400) - 406,000

= $140,000

Net operating income increased by:

= 140,000 - 138,000

= $2,000

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