Richter Company has a single product called a Wim. The company normally produces and sells 87,000 Wims each year at a selling price of $40 per unit. The company's unit costs at this level of activity are given below:
|
|
| Direct materials |
$ |
8.50 |
| Direct labor |
|
12.00 |
| Variable manufacturing overhead |
|
3.80 |
| Fixed manufacturing overhead |
|
6.00 |
| Variable selling expenses |
|
4.70 |
| Fixed selling expenses |
|
4.50 |
|
|
|
| Total cost per unit |
$ |
39.50 |
|
|
|
|
|
A number of questions relating to the production and sale of Wims are given below. Each question is
independent.
|
| Required: |
1.
|
Assume that Richter Company has sufficient capacity to produce 113,100 Wims each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 30% above the present 87,000 units each year if it were willing to increase the fixed selling expenses by $130,000.
|
| a. |
Calculate he incremental net operating income. (Negative amount should be indicated by a minus sign.) |