Data concerning Fowler Corporation's single product appear below:
$$\begin{array} { l r c }
& \text { Per Unit } & \text { Percent of Sales } \
\text { Selling price } & \$ 210 & 100 \% \
\text { Variable costs } & 126 & 60 \% \
\text { Contribution margin } & \$ 84 & 40 \% \

\end{array}$$
Fixed costs are $444,000 per month. The company is currently selling 7,000 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by $2. Since the new component would improve 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 operating profit of this change if fixed costs are unaffected?

Question

Data concerning Fowler Corporation's single product appear below:
 $$\begin{array} { l r c } 
& \text { Per Unit } & \text { Percent of Sales } \
\text { Selling price } & \$ 210 & 100 \% \
\text { Variable costs } & 126 & 60 \% \
\text { Contribution margin } & \$ 84 & 40 \% \

\end{array}$$ 
Fixed costs are $444,000 per month. The company is currently selling 7,000 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by $2. Since the new component would improve 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 operating profit of this change if fixed costs are unaffected?

Quizplus · Accepted Answer

The Answer of Data concerning Fowler Corporation's single product appear below:
 $$\begin{array} { l r c } 
& \text { Per Unit } & \text { Percent of Sales } \
\text { Selling price } & \$ 210 & 100 \% \
\text { Variable costs } & 126 & 60 \% \
\text { Contribution margin } & \$ 84 & 40 \% \

\end{array}$$ 
Fixed costs are $444,000 per month. The company is currently selling 7,000 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by $2. Since the new component would improve 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 operating profit of this change if fixed costs are unaffected?

Data Concerning Fowler Corporation's Single Product Appear Below Fixed Costs Are $444,000 Per Month