Assume a company is considering adding a new product line with the following estimated cost and revenue data: Annual sales 6,000 units Selling price per unit $ 180 Variable manufacturing costs per unit $ 140 Variable selling costs per unit $ 15 Incremental fixed manufacturing costs $ 65,000 per year Incremental fixed selling costs $ 40,000 per year Allocated common fixed administrative costs $ 45,000 per year If the new product line is added, the company expects that it will increase the sales of complementary products, thereby generating $31,000 in incremental contribution margin from those products. What is the financial advantage (disadvantage) of adding the new product line

Concentrate on the incremental revenues (including incremental savings) and incremental costs (including opportunity cost) of adding the new product line.

Analysis of the addition of a new product line

Sales and Savings :

Sales (6,000 units × $ 180) $1,080,000

Sales of complementary products $31,000

Costs and Opportunity Costs :

Variable manufacturing costs per unit ($140 × 6,000 units) (840,000)

Variable selling costs per unit ($15 × 6,000 units) ($90,000)

Incremental fixed manufacturing costs ($ 65,000)

Incremental fixed selling costs ($ 40,000)

Financial advantage (disadvantage) $76,000