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.