Naumann Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 230 100 % Variable expenses 46 20 % Contribution margin $ 184 80 % Fixed expenses are $150,000 per month. The company is currently selling 1,400 units per month. Required: Management is considering using a new component that would increase the unit variable cost by $60. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 600 units. What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected? (Negative amount should be indicated by a minus sign.) Change in net operating income -----------
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Naumann Corporation produces and sells a single product. Data concerning that product appear below:
| Per Unit | Percent of Sales | |||||
| Selling price | $ | 230 | 100 | % | ||
| Variable expenses | 46 | 20 | % | |||
| Contribution margin | $ | 184 | 80 | % | ||
Fixed expenses are $150,000 per month. The company is currently selling 1,400 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by $60. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 600 units. What should be the overall effect on the company's monthly net operating income of this change if fixed expenses are unaffected? (Negative amount should be indicated by a minus sign.)
Change in net operating income -----------
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