Answer:
C) $25,000
Explanation:
new selling price = $110 - $10 = $100
new sales level = 1,000 units + 50% = 1,500 units
variable expenses = $90 per unit remain the same
new fixed expenses including advertising = $30,000 + $5,000 = $35,000
operating income before changes:
total revenue = $110 x 1,000 units = $110,000
variable costs = $60 x 1,000 units = ($60,000)
fixed costs = ($30,000)
operating income = $20,000
new operating income:
total revenue = $100 x 1,500 units = $150,000
variable costs = $60 x 1,500 units = ($90,000)
fixed costs = ($35,000)
operating income = $25,000
operating income will increase by $5,000 or 25% from $20,000 to $25,000
