Richter Company has a single product called a Wim. The company normally produces and sells 60,000 Wims each year at a selling price of $40 per unit. The companys unit costs at this level of activity are given below:

Direct materials	$	7.70
Direct labor		13.00
Variable manufacturing overhead		3.50
Fixed manufacturing overhead		6.00
Variable selling expenses		3.50
Fixed selling expenses		4.50
Total cost per unit	$	38.20

A number of questions relating to the production and sale of Wims are given below. Each question is independent.

Required:
1.	Assume that Richter Company has sufficient capacity to produce 72,000 Wims each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 20% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $120,000.

a.

Calculate the incremental net operating income. (Negative amount should be indicated by a minus sign.)

Incremental Net Operating Income:_________

b.

Would the increased fixed selling expenses be justified?

	Yes
	No

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