Answer:
Explanation:
Given that the relevant range of production is 500 units to 1,500 units, the cost elements are fixed and variable. All the items listed will change as a result of a 5% increase in sales, only the fixed expense will not be affected when the activity level changes from 1000 units to 1050 units.
The 1050 units represents the units sold where there is a 5% increase.
= 1000 × 1.05 = 1050 units
As such,
Sales (1050 units) = 1050/1000 × $80,000 = $84,000
Variable expenses (1050 units) = 1050/1000 × $52,000 = $54,600
As such, If the company sells 1050 units
Amount in $
Sales 84,000
Variable expenses <u>(54,600)</u>
Contribution margin 29,400
Fixed expenses <u>(21,840)</u>
Net operating income <u>7,560 </u>
Estimated percent increase in net operating income = (7560 - 6,160)/6,160 × 100%
= 1,400/6160 × 100%
= 22.73%
