Zenco Machine and Tools currently prices its hammers at $12 per unit. The corresponding unit variable cost is $7 and the unit fixed cost is $2 per when 10,000 hammers are produced and sold. Zenco is considering increasing the price of its hammers to $15 since its suppliers have increased the cost of the materials used in production which has caused the unit variable cost to increase to $8. What is Zenco's projected operating income with the new unit selling price and new unit variable cost if it is only able to produce and sell 8,000 hammers?
A) $30,000
B) $36,000
C) $40,000
D) $56,000

Question

Quizplus · Accepted Answer

New Unit Selling Price - New Unit Variable Cost = New Unit Contribution margin; $15 - $8 = $7 x 8,000 = $56,000 New Contribution Margin; Operating Income = New Contribution Margin - Fixed Costs = $56,000 - ($2 x 10,000) = $36,000.

Zenco Machine and Tools Currently Prices Its Hammers at $12