Question

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Answer 1

9514 1404 393

Answer:

  $1250

Step-by-step explanation:

The revenue from sales for 1000 units is given as $20,000, so the revenue per unit is $20. If we assume that rate remains the same, then the revenue from sales of 1250 units will be $20 × 1250 = $25,000.

The variable expenses for 1000 units are shown as $12,000, so are $12 per unit. If those go up by $1 per unit, the variable expenses for 1250 units will be $13 × 1250 = $16,250.

The contribution margin at these new rates will be ...

  $25,000 -16,250 = $8750

The increase in advertising will raise fixed expenses to $6000 +1500 = $7500. The difference from contribution margin is the operating income:

  operating income = $8750 -7500 = $1250

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Alternate solution

The contribution margin is given as $8000 for sales of 1000 units, or $8 per unit. If the variable cost increases by $1 per unit, this goes down to $7 per unit. Then the contribution margin from sale of 1250 units is $7 × 1250 = $8750, same as above. The rest of the the operating income calculation is the same.