Answer:
The net increase in operating income would amounts to $ 20,000
Explanation:
Computing the contribution margin ratio using the formula as:
Contribution Margin (CM) ratio = 1 - Variable expense ratio
where
Variable expense ratio is 40% or 0.40
Contribution Margin ratio 1 - 0.40
Contribution Margin ratio = 0.6
Now, computing the increase in the net operating income as:
Increase in net operating income = (Contribution Margin ratio × Increase in sales) - Increase in fixed expenses
where
Contribution Margin ratio is 0.6
Increase in Sales is $75,000
Increase in fixed expenses is $25,000
Putting the values above:
Increase in net operating income = (0.6 × $75,000) - $25,000
Increase in net operating income = $45,000 - $25,000
Increase in net operating income = $20,000
