2C2M RAYMUND INC., A BEARINGS MANUFACTURER, HAS THE CAPACITY TO PRODU...
261.
CSO: 2C2g
LOS: 2C2m
Raymund Inc., a bearings manufacturer, has the capacity to produce 7,000 bearings per
month. The company is planning to replace a portion of its labor intensive production
process with a highly automated process, which would increase Raymund’s fixed
manufacturing costs by $30,000 per month and reduce its variable costs by $5 per unit.
Raymund’s Income Statement for an average month is as follows.
Sales (5,000 units at $20 per unit)
$100,000
Variable manufacturing costs
$50,000
Variable selling costs
15,000
65,000
Contribution margin
35,000
Fixed manufacturing costs
16,000
Fixed selling costs
4,000
20,000
Operating income
$ 15,000
If Raymund installs the automated process, the company’s monthly operating income
would be
a.
$5,000.
b.
$10,000.
c.
$30,000.
d.
$40,000.