Question - Andretti Company has a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below:
Direct materials - $10.00
Direct labor - 4.50
Variable manufacturing overhead - 2.30
Fixed manufacturing overhead - 5.00 ($300,000 total)
Variable selling expenses - 1.20
Fixed selling expenses - 3.50 ($210,000 total)
Total cost per unit - $26.50
Assume that Andretti Company has sufficient capacity to produce 90,000 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 25% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $80,000. Calculate the incremental net operating income.