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    Relevant costs and Operating Income

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    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.

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    https://brainmass.com/business/accounting/relevant-costs-operating-income-220705

    Solution Preview

    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 ...

    Solution Summary

    Response gives steps to compute the relevant cost, operating income and taking important decisions such as lowest selling price for the product.

    $2.19

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