Rubber City Cycles manufactures carbon fiber bicycle frames for professional racing and avid amateur ...

Rubber City Cycles manufactures carbon fiber bicycle frames for professional racing and avid amateur cyclists. Rubber City has found a CNC (computer numerical control) machine that will significantly reduce manufacturing waste while improving the quality of the frames. The new CNC machine will increase annual fixed costs by $13,750, but will decrease variable cost per unit by $150. Rubber City expects to sell 750 frames next year.

Annual data for the current system are as follows:

Average selling price per frame                                 $1,250
Average variable manufacturing cost per frame        $700
Average variable selling cost per frame                     $75
Total annual fixed costs                                              $142,500

By what amount will Rubber City’s operating income increase (decrease) if they purchase the new CNC machine?

A) $98,750
B) ($98,750)
C) $312,500
D) ($312,500)