Question

Waterproof Roofing Company has provided the following​ information:
Sales revenue ​$779,000
Variable costs ​506,000
Fixed costs ​216,000

Which of the following statements is​ true, if the sales volume increases by​ 10%?
(A) Contribution margin will increase by​ $77,900.
(B) Fixed expenses will increase by​ $21,600.
(C) Operating income will increase by​ $50,600.
(D) Operating income will increase by​ $27,300.

Answer 1

Answer:

(D) Operating income will increase by​ $27,300.

Explanation:

The sales increase will also generate an increase in the variable cost

The fixed cost, remaing unchanged against the volume of production. they do not increase or decrease at the factory level.

So the operating income will increase by the diffrence between sales and variable cost

sales increase will be:

779,000 x 10% = 77,900

variable cost increase:

506,000 x 10% = 50,600

increase in operating income 77,900 - 50,600 = 27,300