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    Operating Income for Greenville Corporations

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    Greenville Corporation is considering the addition of a new product to its current product lines. The expected cost and revenue data for the new product are as follows:

    Annual sales 3,000 unts
    Selling price per unit $309
    Variable costs per unit:
    Production $130
    Selling $50
    Avoidable fixed costs per year:
    Production $51,000
    Selling $75,000
    Unavoidable allocated fixed corporate costs per year: $54,000

    If the new product is added to the existing product line, then sales of existing products will decline. As a consequence, the contribution margin of the other existing product lines is expected to drop $78,000 per year.
    A. If the new product is added next year, the increase in net operating income resulting from this decision would be:
    B. What is the lowest selling price per unit that could be charged for the new product and still make it economically desirable to add the new product?

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    Solution Summary

    The operating income for Greenville Corporations are examined.