Question

Zippy Company has a product that it currently sells in the market for $60 per unit. Zippy has developed a new feature that, if added to the existing product, will allow Zippy to receive a price of $75 per unit. The total cost of adding this new feature is $42,000 and Zippy expects to sell 2,700 units in the coming year. What is the net effect on next-year's operating income of adding the feature to the product?

Answer 1

Answer:

it will generate a loss for 1,500

Explanation:

The new feature will:

• will generate cost for 42,000
• increase sales price by 15
• sales for 2,700 units

We will multiply the additional revenue and check if cover the additional cost

15 x 2,700 = 40,500 additional sales revenue

we subtract the additional cost

40,500 - 42,000 = (1,500)

We have a differencial loss for 1,500 as the additional feature do not cover their cost.