Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $120 per unit. Variable cost was $95 per unit and the fixed costs were $3,200,000 per month. Taizhong currently sells 140,000 units per month.

Because of volatility in the precious metals market, the variable cost per unit has just gone up by $5, but the company does not believe it can pass the extra cost on to the customer. To offset higher variable costs, the production manager has developed a plan which will reduce fixed costs by 20%.

How will these combined changes affect net operating income?