Answer (C) is correct . The effect on net income from producing the new doll can be calculated as follows: ? Sales revenue $1,000,000 Less:? variable costs (600,000) Contribution margin $???400,000 Less:? fixed costs (456,000) Operating income $????(56,000) Add:? income tax effect ?16,800 Effect on net income $????(39,200)
Answer (A) is incorrect because The amount of $(176,000) results from improperly subtracting fixed costs after the calculation of income taxes.
Answer (B) is incorrect because The new doll’s effect on operating income is $(56,000).
Answer (D) is incorrect because The amount of $280,000 results from failing to subtract the incremental fixed costs.
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If 10,000 new dolls are produced and sold, the effect on Doll House’s profit (loss) would be