Use the following information to answer the following Questions
Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.

Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for Regular and $20 per unit for Super. Variable selling expenses are $4 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed.

-Disregard the information in the previous question. If Omar Industries eliminates Regular and uses the available capacity to produce and sell an additional 1,500 units of Super, what would be the impact on operating income?
A) $28,000 increase
B) $45,000 increase
C) $55,000 increase
D) $85,000 increase
E) None of the answers is correct.

Question

Use the following information to answer the following Questions
Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.

Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for Regular and $20 per unit for Super. Variable selling expenses are $4 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed.

-Disregard the information in the previous question. If Omar Industries eliminates Regular and uses the available capacity to produce and sell an additional 1,500 units of Super, what would be the impact on operating income?
A) $28,000 increase 
B) $45,000 increase 
C) $55,000 increase 
D) $85,000 increase 
E) None of the answers is correct.

Quizplus · Accepted Answer

The impact on operating income would be the additional contribution margin from producing and selling 1,500 more units of Super. If the contribution margin per unit of Super is $55, then 1,500 units would result in a $55,000 increase in operating income (1,500 units x $55 per unit).

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