Pioche Company is considering selling a “premium” version of one of its products
ID: 2498278 • Letter: P
Question
Pioche Company is considering selling a “premium” version of one of its products. The following information is available. The “additional processing costs” are the costs needed to transform the units from “standard” to “premium.”
Number of units produced 100,000
Selling price of “standard” units $10 per unit
Additional processing costs $500,000
Selling price of “premium” units $17 per unit
Before any additional processing costs, the total production cost for the 100,000 units is $900,000. What will be the change in Pioche Company’s net income if the company decides to sell a “premium” version of this product?
Decrease of $400,000
Increase of $200,000
No change
Decrease of $200,000
Increase of $100,000
Decrease of $400,000
Increase of $200,000
No change
Decrease of $200,000
Increase of $100,000
Explanation / Answer
Ans-Increase of $200,000
Standand Premium No of units 100000 100000 Selling price per unit $ 10 17 Sales revenue $ 1000000 1700000 Production cost $ 900000 900000 Additional cost $ 0 500000 Total cost $ 900000 1400000 Net Income $ 100000 300000 Increase of $ 200000