Sales 950000 variable costs 450000 fixed costs 310000 a, Ask an Expert

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Sales $950,000
Variable Costs $450,000
Fixed Costs $310,000

A proposed addition to Farrell's factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company's accountants have determined that the proposed addition will add $320,000 to fixed costs each year.

a) Explain why the existing $310,000 of fixed costs is a sunk cost while the $320,000 of fixed costs associated with the proposed addition is an out of pocket cost.

b) Calculate by how much the proposed addition will either increase or reduce operating income.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9978482

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