Question

Brace Corporation sells and produces one single product, a maple baseball bat. Data regarding the maple bats appear below:

	Per Unit		Percent of Sales
Selling price	$	290	100%
Variable expenses		58	20%
Contribution margin	$	232	80%

Brace's fixed expenses are $210,000 per month. They are currently selling 1,600 baseball bats per month.

Brace's management is considering a new super-premium type of maple wood that would increase the unit variable cost by $70 per bat. Since the new maple wood would dramatically improve the company's product, the marketing manager predicts that monthly sales would increase by 600 units.

Required:

What should be the overall effect on Brace Corporation's company's monthly net operating income if the new maple wood is used and fixed expenses are unchanged? (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

Change in net operating income

$

Answer 1

Change in net operating income

(14,800.00)

Operating Income will reduce by 14,800

	Normal Bat	Premium Bat	Change
Sales (1600*290)(2200*290)	464,000	638,000	174,000
Variable Expesnes (58*1600) ((70+58)*2200)	92,800	281,600	188,800
Contribution	371,200	356,400	(14,800)
Fixed Expesnes	210,000	210,000	-
Operating income	161,200	146,400	(14,800)

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