Delta Aluminum’s management is considering eliminating product B, which has been showing a loss for several years. The company’s annual income statement is as follows: A B C Total Sales $2,209,000 $1,402,000 $1,805,900 $5,416,900 Variable expenses 1,436,000 801,000 1,082,800 3,319,800 Contribution margin $773,000 $601,000 $723,100 $2,097,100 Advertising expense $609,000 $528,000 $521,000 $1,658,000 Depreciation expense 15,300 10,200 21,900 47,400 Corporate expenses 81,100 80,300 106,900 268,300 Total fixed expenses $705,400 $618,500 $649,800 $1,973,700 Operating income $67,600 $-17,500 $73,300 $123,400 Advertising expense - Specific to each product. Depreciation expense - Specific to each product; no other use available, no resale value. Corporate expenses - Allocated based on number of employees.
Management is considering making a new product using product B’s equipment. If the new product’s selling price per unit were $11, its variable costs were $5, and its advertising costs were the same as for product B,
how many units of the new product would the company have to sell to make the switch from product B to the new product worthwhile?