Question

Perry Corporation produces and sells a single product. Data for that product are: Sales price per...

Perry Corporation produces and sells a single product. Data for that product are:

Sales price per unit $275
Variable cost per unit $170
Fixed expenses for the month $600,000
Currently selling 11,000 units

Upper management is considering using a biodegradable packaging which costs $5 more per unit but it produces less waste in the long run. Management plans to increase advertising by $8000 in the first month to advertise this new feature to their packaging. They believe that environmentally friendly people will switch to their product resulting in an increase in sales of 3000 units per month.

What should be the overall effect on the company's monthly operating income in the first month if this change is implemented?

Increase of $237,000 = A

Increase of $253,000 = B

Decrease of $253,000 = C

Decrease of $237,000 = D
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Homework Answers

Answer #1

income statement

Particular amount ($)
Sales. (11000×$275) 3025000
(-) variable expenses(11000×$170) (1870000)
CONTRIBUTION 1155000
(-) fixed expenses (600000)
net operating income 555000

after management changes net operating income will be

Particular amount ($)
Sales(11000+3000)14000×$275 3850000
(-) variable expenses(14000×$170+$5)14000×$175 (2450000)
CONTRIBUTION 1400000
(-) fixed expenses($600000+$8000) (608000)
net operating income 792000

Old net operating income - after change net operating income

$555000 - $792000= $237000 increases

Answer: increases $237000

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