Answer:
An increase in production generates no change in income.
Explanation:
Under variable costing, the invariable costs are direct material, direct labor, and variable overhead. <u>Therefore, an increase in production generates no change in income.</u>
Current income:
Contribution margin= 75,000*(25 - 7.5)= $1,312,500
Fixed overhead= (300,000)
Net operating income= 1,012,500
Hypothetical income:
Contribution margin= 75,000*(25 - 7.5)= $1,312,500
Fixed overhead= (300,000)
Net operating income= 1,012,500
<u>Income varies if the unitary variable components change</u>. A supplier offers a discount on materials or the labor gets more efficient due to the learning curve.
