Question

If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, net operating income will: (Do not round intermediate calculations.)
decrease by $3,125.
increase by $20,625.
decrease by $15,000.
decrease by $31,875.
Sales 3,000 Units
Sales Price $70
Variable Cost $50
Fixed Cost $25,000

Answer 1

Answer: decrease by $31,875

Explanation:

Net Operating income;

= Sales - variable cost - fixed cost

= (70 * 3,000) - ( 50 * 3,000) - 25,000

= $35,000

Sales volume decreases by 25%;

= 3,000 * ( 1 - 25%)

= 2,250 units

Variable cost per unit increases by 15%;

= 50 * ( 1 + 15%)

= $57.50

New Net Operating income;

= (70 * 2,250) - (57.50 * 2,250) - 25,000

= $3,125

Net Operating income change;

=  3,125 - 35,000

= -$31,875

Decrease by $31,875