Question
Qin Company is considering adding a new type of product, Product X, to its product lines. Below are revenue and variable-cost estimates prepared to help
Qin Company is considering adding a new type of product, Product X, to its product lines.
Below are revenue and variable-cost estimates prepared to help analyze this possible product introduction:
Annual Sales | 12,500 units |
Selling price per unit | $50 |
Unit variable costs: | |
Production | $20 |
Selling | $11 |
If Product X is introduced, the product line will include $110,000 in annual fixed cost, composed of $27,000 in newly incurred fixed costs in production; $33,000 in newly incurred fixed costs in sales; and $50,000 in allocated corporate-level costs (reducing allocation to other product lines by $50,000).
Also, if Product X is introduced, it will likely boost sales of Qin Company's current products, increasing the total contribution margin from current products by $26,000.
Q) What is the change in the company's net operating income if the new product is introduced?
(Key in a positive number if it is an increase, a negative number if it is a decrease.)
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