Question

If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net operating income will: Group of answer choices increase by $61,000 increase by $20,000 increase by $3,500 increase by $11,000

Answer 1

Answer:

increase by $11,000

Explanation:

The computation of net operating income is shown below:-

Revenue = Sales per unit × Sales price per unit

= 3,000 × $70

= $210,000

Less variable costs = Sales per unit × Variable cost per unit

= 3,000 × $50

= $150,000

Fixed costs = $25,000

Net income =  Revenue - Less variable costs - Fixed costs

= $210,000 - $150,000 - $25,000

= $35,000

Contribution margin per units = $70 - $50

= $20

Increase by 10%, it will be

$20 × (1 + 0.1)

= $22

If it decrease by 20%

= $25,000 × (1 - 0.20)

= $20,000

Net income = $3,000 × 22 - 20,000

= 46,000

So it was 35,000, with the changes it is 46,000. That increase by $11,000