What would be the increase in budgeted net operating income

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Mittance Company is considering a proposal to replace existing machinery. The new machines are expected to cause increased annual fixed expenses of $120,000; however, total variable expenses should decrease by 20% due to a reduction in direct-labor hours and more efficient usage of direct materials.

Before this change was under consideration, Mittance had prepared the following budget data (these numbers DO NOT include the new machines):

Sales $2,000,000
Variable expenses 70% of sales
Fixed expenses $400,000

Problem 1: Assume that Mittance implements the above proposal to replace the existing machines. What would be the increase in budgeted net operating income? (Show all work)

Reference no: EM132833753

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