marketing research indicates that we could be selling the product for $2 more per unit. Also, in the week since Bob took the job we have observed a number of operating inefficiencies. We believe they could be eliminated if the division invested in some new technology. The problem is that this equipment will significantly increase fixed expenses (in addition to the cost of acquisition and installation). Will it be worth it? It could translate to a better bottom line and a nice bonus . Wouldnt it be great to pay off the student loans quickly? Determine the new operating income using the following assumptions: Selling Price/unit $27 Variable Cost/unit 18 Unit Sales Volume 25,000 units Fixed Expenses (use the Fixed Expenses calculated from data in part a, plus the $5,000 for the new ad campaign and $45,000 in additional Fixed Expenses relating to the new technology).

Given

a. Total Sales: $550,000 Costs/Expenses: Production Labor 202,000 Factory rent 10,000 HQ rent 15,000 Factory electricity 35,000 HQ electricity 10,000 Starting Materials 10,000 Materials Purchased 165,000 Ending Materials 31,000 Factory Supervision 40,000 HQ Labor 25,000 b. Selling price/unit $25