Question

Spice Inc.'s unit selling price is $45, the unit variable costs are $30, fixed costs are $113,000, and current sales are 9,900 units. How much will operating income change if sales increase by 5,900 units

Answer 1

The Increase in operating income is $159500.

How to calculate the income?

Proposed

Unit sales = 9900 + 5900 = 15800

Sales = 15800 × 45 = 711000

Variable expenses = 15800 × 30 = 474000

Contribution margin = 711000 - 474000 = 237000

Fixed cost = 113000

Operating income = 124000

Current

Unit sales = 9900 l

Sales = 9900 × 45 = 445500

Variable expenses = 9900 × 30 = 297000

Contribution margin = 445500 - 297000 = 148500

Fixed cost = 113000

Operating income = 35500

Increase in operating income:

= 35500 + 124000

= 159500

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