Tochet Company manufactures CB1, a citizens band radio. The companys plant has an annual capacity of 50,000 units. Tochet currently sells 40,000 units at a price of $105. It has the following cost structure:

Variable manufacturing cost per unit $45

Fixed manufacturing costs $800,000

Variable marketing and distribution cost per unit $10

Fixed marketing and distribution costs $600,000

The Marketing Department indicates that decreasing the selling price to $99 would increase sales to 50,000 units. This strategy will require Tochet to increase its fixed marketing and distributing costs.

Question:

1. What is the current operating income of Tochet?

2.Calculate the maximum increase in fixed marketing and distribution costs that will allow Tochet reduce the selling price to $99 and maintain its operating income (sales volume at capacity).