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Problem 1: A company produces 1,000 packages of cat food per month. The sales price is $3.90 per pack. Variable cost is $1.50 per unit, and fixed costs are $1,700 per month. Management is considering adding a vitamin supplement to improve the value of the product. The variable cost will increase from $1.50 to $1.90 per unit, and fixed costs will increase by 10%. The company will price the new product at $7 per pack. How will this affect operating income?
A. Operating income will remain unchanged.B. Operating income will increase by $2,530 per month.C. Operating income will decrease by $1,030 per month.D. Operating income will decrease by $2,530 per month.
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