Question
The Ace Corporation manufactures bicycles. The production and market information in 2019 were as follows: Market demand for Ace bicycles 12,000 units Price and costs
The Ace Corporation manufactures bicycles. The production and market information in 2019 were as follows:
Market demand for Ace bicycles | 12,000 units |
Price and costs per bicycle | |
Selling price | $300 |
Variable manufacturing cost | 200 |
Variable marketing cost | 25 |
Allocated fixed costs | 50 |
Machine hours required to produce 1 bicycle | 0.5 hrs. |
* Total machine hours available: 5,000 hours
The given information is expected to stay unchanged in 2020. However, Ace discovered an opportunity to rent another machine that can increase capacity by 2,000 machine hours at an additional rent expense of $40,000.
Required: Assuming that Ace Corporation rents the additional machine at $40,000 and there is no inventories either in 2019 or 2020, calculate how much operating income would increase(decrease) from 2019 to 2020 if Ace maximizes profit.
Input a positive number for increase in income, whereas a negative number (with a minus sign) for decrease.
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