Total and Differential Cost Approaches The management of a company is considering a new labor saving machine that rents for $3,000 per year. Data about the company's annual sales and costs with and without the new machine are: Situation Differential Current With New Costs and Situation Machine Benefits Sales (5,000 units @ $40 per unit) $ 200,000 $ 200,000 Less variable expenses: Direct materials (5,000 units @ $14 per unit) 70,000 70,000 Direct labor (5,000 units @ $8 and $5 per unit) 40,000 25,000 15,000 Variable overhead (5,000 units @ $2 per unit) 10,000 10,000 Total variable expenses 120,000 105,000 Contribution margin 80,000 95,000 15,000 Less fixed expense: Other 62,000 62,000 Rent on new machine 3,000 (3,000) Total fixed expenses 62,000 65,000 (3,000) Net operating income 18,000 $ 30,000 12,000