Question

The following information exists for ABC Company: Selling price per unit: $30 Variable expenses per unit: $21 Fixed expenses for the period: $60,000 Sales volume in units: 10,000 If advertising of $15,000 is spent to increase sales volume by 2,000 units, operating income will increase by $.

Answer 1

Answer:

Operating income will increase by $3000

Explanation:

Total Contribution = (30-21)*10000 = 90000

Operating income = 90000-60000 = 30000

Increase in sales by 2000 units then,

Total contribution = (30-21)*12000 = 108000

Operating income = 108000-60000-15000 = 33000

Hence operating income will increase by 33000-30000 = $3000

Answer 2

Answer:

$3,000

Explanation:

The operating income is the difference between the revenue and the total cost. The total cost is the sum of the fixed and variable costs. Both revenue and variable cost are dependent on the level of activity of the business.

Given that Selling price per unit: $30 Variable expenses per unit: $21 Fixed expenses for the period: $60,000 Sales volume in units: 10,000

Operating income =  10,000 ($30 - $21) - $60,000

= $30,000

If sales  increases by 2000 units after an additional cost of $15,000 is incurred, Operating income will be

= 12,000 ($30 - $21) - $60,000 - $15,000

= $33,000

Increase in operating income = $33,000 - $30,000

= $3,000