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Chovanec Corporation produces and sells a single product. Data concerning that product appear below:     Per Unit Percent of Sales Selling price $ 170 100% Variable expenses 68 40% Contribution margin $ 102 60%   Fixed expenses are $521,000 per month. The company is currently

Chovanec Corporation produces and sells a single product. Data concerning that product appear below:     Per Unit Percent of Sales Selling price $ 170 100% Variable expenses 68 40% Contribution margin $ 102 60%   Fixed expenses are $521,000 per month. The company is currently

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Chovanec Corporation produces and sells a single product. Data concerning that product appear below:

 

  Per Unit Percent of Sales
Selling price $ 170 100%
Variable expenses 68 40%
Contribution margin $ 102 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?

 

Multiple Choice
  •  
    increase of $6,000
  •  
    decrease of $6,000
  •  
    decrease of $48,000
  •  
    increase of $48,000
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