Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will:

Question

Jaidyn Franco

Business

7 February, 09:16

Company A produces and sells 10,000 units of its product for $10 per unit. Variable costs are $4 per unit and fixed costs total $30,000. A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units. If the move is made, profits will:

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Yuliana Ramsey · Answer 1

Effect on income = $2,000 decrease

Explanation:

Giving the following information:

Selling price = $10 per unit.

Variable costs are $4 per unit

A move to a larger facility would increase rent expense by $8,000, and allow the company to meet its demand for an additional 1,000 units.

We need to calculate the effect in the income of moving to a larger facility.

Effect on income = total contribution margin increase - increase in fixed costs

Effect on income = 1,000 * (10 - 4) - 8,000

Effect on income = $2,000 decrease