Question
Company A produces Gollum-1 for Company B Sales (13,500 units at $20 per unit) $270,000 Variable expenses (all production related) $189,000 Contribution Margin $81,000 Fixed
Company A produces Gollum-1 for Company B
Sales (13,500 units at $20 per unit) $270,000
Variable expenses (all production related) $189,000
Contribution Margin $81,000
Fixed Expenses (all production related) $90,000
Net operating loss -$9000
Assume now that producing 13,500 units of Gollum-1 exhausts all the capacity of Company A. However, demand for Gollum-1 has dropped and the company has to produce 6750 units of Gollum-2 to replace 6750 units of Gollum-1. Capacity can be switched between the two products in a ratio of 1:1 of output. Given this new production and sales schedule, what will be the new operating income?
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