Barker Company has a single product called a Zet. The company normally produces and sells 80,000 Zets each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:
Direct materials $ 9.50
Direct labor 10.00
Variable manufacturing overhead 2.80
Fixed manufacturing overhead 5.00 ($400,000 total)
Variable selling expenses 1.70
Fixed selling expenses 4.50 ($360,000 total)
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Total cost per unit $ 33.50
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A number of questions relating to the production and sale of Zets are given below. Each question is
independent.
Required:
1.
Assume that Barker Company has sufficient capacity to produce 100,000 Zets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 25% above the present 80,000 units each year if it were willing to increase the fixed selling expenses by $150,000.
a. Calculate the incremental net operating income. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)
Incremental net operating income $