Information regarding current operations of the Farrell Corporation is given below:
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. Variable costs are expected to be at the same percentage as they currently are before the proposed addition.
Calculate by how much the proposed addition will either increase or reduce operating income. Show all work.