Question

Qin Company is considering adding a new type of product, Product X, to its product lines.

Below are revenue and variable-cost estimates prepared to help analyze this possible product introduction:

Annual Sales	12,500 units
Selling price per unit	$50
Unit variable costs:
Production	$20
Selling	$11

If Product X is introduced, the product line will include $110,000 in annual fixed cost, composed of $27,000 in newly incurred fixed costs in production; $33,000 in newly incurred fixed costs in sales; and $50,000 in allocated corporate-level costs (reducing allocation to other product lines by $50,000).

Also, if Product X is introduced, it will likely boost sales of Qin Company's current products, increasing the total contribution margin from current products by $26,000.

Q) What is the change in the company's net operating income if the new product is introduced?

(Key in a positive number if it is an increase, a negative number if it is a decrease.)

Answer 1

OR

change in operating income = increase in contribution margin - additional fixed costs incurred if new product line added

= 26000- 27000-33000= -34000