Disregard the information in the previous question.If HiTech 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 thesE.

Question

Quizplus · Accepted Answer

Eliminating Regular and producing an additional 1,500 units of Super would increase the revenue by 1,500 x $90 = $135,000 (since the selling price of Super is $90 per unit). The cost of producing these units would be 1,500 x $45 = $67,500 (since the variable cost of Super is $45 per unit). This would result in an increase in operating income of $135,000 - $67,500 = $67,500. However, we also need to consider the opportunity cost of not producing Regular, which is (2,000 x $20) = $40,000. Therefore, the net increase in operating income would be $67,500 - $40,000 = $27,500, which is closest to option C ($55,000 increase). Therefore, C is the best choice.

Disregard the Information in the Previous Question