Question

Edmonco Company produced and sold 45,000 units of a single product last year, with the following results: Sales Revenue $ 1,350,000 Manufacturing costs: Variable 585,000 Fixed 270,000 Selling costs: Variable 40,500 Fixed 54,000 Administrative costs: Variable 184,500 Fixed 108,000 If Edmonco's sales revenues increase 15%, what will be the percentage increase in income before income taxes

Answer 1

Answer:

75%

Explanation:

The computation of the percentage increase in income before income taxes is shown below:

Particulars             Current $             Increase at 15%         Revised $

Sales revenue      1350000                    202500                     1552500

Less: Variable cost    

Variable manufacturing 585000                 87750                  672750

Variable selling              40500                   6075                    46575

variable Admin              184500                   27675                  212175

Total variable cost         810000                  121500                931500

Contribution                   540000                  81000                  621000

Less: Fixed cost    

Manufacturing                  270000                       0                  270000

Selling                               54000                         0                  54000

Admin                              108000                         0                 108000

Net income                      108000                     81000               189000

Now percentage increase in income is

= (81000 ÷ 108000)

= 75%

Answer 2

The percentage increase in Edmonco Company's income before income taxes is 75%.

Data and Calculations:

Production and sales units = 45,000 units

Sales Revenue = $ 1,350,000

Manufacturing costs:

Variable  = 585,000

Fixed  = 270,000

Total manufacturing costs = $855,000

Selling costs:

Variable 40,500

Fixed 54,000

Total selling costs = $94,500

Administrative costs:

Variable 184,500

Fixed 108,000

Total administrative costs = $292,500

Total variable costs = $810,000 ($585,000 + $40,500 + 184,500)

Total fixed costs = $432,000 ($270,000 + $54,000 + $108,000)

Income Statements

                                     Last Year       Projected

Sales Revenue =      $ 1,350,000    $1,552,500 ($1,350,000 x 1.15)

Variable costs =             810,000          931,500 ($810,000 x 1.15)

Contribution margin  $540,000         $621,000

Fixed costs                  (432,000)        (432,000)

Income before taxes $108,000         $189,000

Increase in income before taxes = $81,000

Percentage increase in income before taxes = 75% ($81,000/$108,000 x 100)

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