A company produces 1,000 packages of chicken feed per month
The sales price is $6 per pack. Variable cost is $1.50 per unit, and fixed costs are $1,600 per month. Management is considering adding a vitamin supplement to improve the value of the product. The variable cost will increase from $1.50 to $2.50 per unit, but there will be no change in fixed costs. The company will price the new product at $4.50 to compete with other products. How will this affect operating income?
A) Operating income will decrease by $2,500 per month.
B) Operating income will increase by $2,500 per month.
C) Operating income will decrease by $1,600 per month.
D) Operating income will remain unchanged.
A .A)
Further
Sell as is processing
Sales revenue $6,000 $4,500
Less: Variable cost 1,500 2,500
Less: Fixed cost 1,600 1,600
Operating income $2,900 $400
Decline in operating income $2,500
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