Question

The following information applies to questions 9 and 10. Company AB Sales $100,000 $100,000 Variable cost 60,000 40,000 Contribution margin 40,000 60,000 Fixed expenses 20,000 40,000 Operating income 20,000 20,000 9. If Company A experiences a 40% increase in sales, operating income would increase to: A) $32,000 B) $24,000 C) $28,000 D) $36,000

Answer 1

Answer:

D) $36,000

Explanation:

The income received from the operations of the business is known as the operating income. It is calculated after deducting all the variable and fixed overheads from the sales value.

Following is the comparative contribution income statement before and after the change in the sales value.  

Company                            Current        After Increase    Change

Sales                                   $100,000    $140,000            +40,000

Variable cost                      $60,000     $84,000              +24,000

Contribution margin          $40,000     $56,000               +16,000

Fixed expenses                 $20,000     $20,000               +0

Operating income             $20,000     $36,000                +16,000

Increase in Operating Income = $36,000

Answer 2

Answer:

D) $36,000

Explanation:

Company                            Current        After Increase    Change

Sales                                   $100,000    $140,000            +40,000

Variable cost                      $60,000     $84,000              +24,000

Contribution margin          $40,000     $56,000               +16,000

Fixed expenses                 $20,000     $20,000               +0

Operating income             $20,000     $36,000                +16,000

The Increase in Operating Income will be = $36,000 as our final answer