Lopez Company is experiencing a bottleneck in its plant. Setup time has been identified as the bottleneck. The production manager has proposed a plan to reconfigure the plant layout that will reduce setup time. The following information is available regarding this change:

Cost of Reconfiguration

$34,000

Additional unit production and sales

8,000

Selling price

$15

Direct Materials

$ 5

Direct Labor

$ 4

Variable Overhead

$ 2

Which of the following best describes the financial results and whether Lopez Co. should go forward with the reconfiguration?

Multiple Choice

• No change to Operating Income, reject the proposal.

• Increase Operating Income by $26,000, accept the proposal.

• Increase Operating Income by $14,000, accept the proposal.

• Decrease Operating Income by $2,000, reject the proposal.