Chovanec Corporation produces and sells a single product. Data concerning that product appear below:
Per Unit
Selling price....................... $170
Variable expenses.............. 68
Contribution margin.......... $102
Percent of Sales 100% 40% 60%
Fixed expenses are $521,000 per month.
The company is currently selling 7,000 units per month. Management is considering using a new component that would increase the unit variable cost by $6. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change?
A) decrease of $48,000
B) decrease of $6,000
C) increase of $48,000
D) increase of $6,000
