Lopez Company is experiencing a bottleneck in its plant. Setup time has been identified as...
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Accounting
Lopez Company is experiencing a bottleneck in its plant. Setup time has been identified as the bottleneck. The production manager has proposed a plan to reconfigure the plant layout that will reduce setup time. The following information is available regarding this change:
Cost of Reconfiguration
$34,000
Additional unit production and sales
8,000
Selling price
$15
Direct Materials
$ 5
Direct Labor
$ 4
Variable Overhead
$ 2
Which of the following best describes the financial results and whether Lopez Co. should go forward with the reconfiguration?
Multiple Choice
No change to Operating Income, reject the proposal.
Increase Operating Income by $26,000, accept the proposal.
Increase Operating Income by $14,000, accept the proposal.
Decrease Operating Income by $2,000, reject the proposal.
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