Alden Corporation produces and sells a single product. Data concerning that product appear below:
$$\begin{array} { l r c }
& \text { Per Unit } & \text { Percent of Sales } \
\text { Selling price } & \$ 190& 100 \% \
\text { Variable costs } & 38 & 20 \% \
\text { Contribution margin }&152&80\%
\end{array}$$
Fixed costs are $110,000 per month. The company is currently selling 1,000 units per month.
Required:
Management is considering using a new component that would increase the variable cost per unit by $56. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly operating profit of this change if fixed costs are unaffected?

Question

Alden Corporation produces and sells a single product. Data concerning that product appear below:
 $$\begin{array} { l r c } 
& \text { Per Unit } & \text { Percent of Sales } \
\text { Selling price } & \$ 190& 100 \% \
\text { Variable costs } & 38 & 20 \% \
\text { Contribution margin }&152&80\%
\end{array}$$ 
Fixed costs are $110,000 per month. The company is currently selling 1,000 units per month.
Required:
Management is considering using a new component that would increase the variable cost per unit by $56. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 500 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 Alden Corporation produces and sells a single product. Data concerning that product appear below:
 $$\begin{array} { l r c } 
& \text { Per Unit } & \text { Percent of Sales } \
\text { Selling price } & \$ 190& 100 \% \
\text { Variable costs } & 38 & 20 \% \
\text { Contribution margin }&152&80\%
\end{array}$$ 
Fixed costs are $110,000 per month. The company is currently selling 1,000 units per month.
Required:
Management is considering using a new component that would increase the variable cost per unit by $56. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly operating profit of this change if fixed costs are unaffected?

Alden Corporation Produces and Sells a Single Product Fixed Costs Are $110,000 Per Month