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    Net Income

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    Budgeted income statement:

    sales revenue (2,300 units x $14 sales price) $32,200
    total variable expenses (2,300 x $6 per unit) (13,800)
    contribution margin 18,400
    fixed expense (10,000)
    net income $8,400

    The company believes it can reduce variable costs to $4 per unit and significantly improve the product. The innovations would double fixed costs but the company expects to be able to increase sales to 3,000 units. If this strategy is pursued the company's budgeted net income will:

    a) increase by 1,600
    b)increase by 1,440
    c)increase by 10,000
    d)decrease by 4,400

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    Solution Summary

    This solution contains calculation of effect on net income if strategy is pursued.