Task: The Flint Fan Company is considering the addition of a new model fan, the F-27, to its current product lines. The expected cost and revenue data for the F-27 fan are as follows:
Annual Sales in units 4,000
Unit Selling Price $58
Unit Variable Costs:
Production $34
Selling $4
Avoidable fixed costs per year:
Production $20,000
Selling $30,000
If the F-27 model is added as a new product line, it is expected that the contribution margin of other product lines at Flint will drop by $7,000 per year.
Problem 1: If the F-27 product line is added next year, calculate the change in operating income.
Problem 2: Calculate the lowest unit selling price that could be charged for the F-27 model and still make it economically desirable for Flint to add the new product line.