Question

Last month when Holiday Creations, Inc., sold 45,000 units, total sales were $303,000, total variable expenses were $254,520, and fixed expenses were $37,600.

2.	Estimate the change in the company’s net operating income if it were to increase its total sales by $2,500.

     

Answer 1

• All working forms part of the answer
• Amounts are in $
• Working on given data

	Amount	% of Sales
Sales Revenue	$303000	100%
(-) Variable cost	$254520	84%
Contribution margin	$48480	16%
(-) Fixed expenses	$37600
Net Income	$10880

• If Sale increases by $2500, variable cost and contribution will change in same above proportion

Sales Revenue [303000+2500]	$305500
(-) variable cost [305500x84%]	$256620
Contribution margin [305500x16%]	$48880
(-) Fixed expenses	$37600
Net Income if Sales increase	$11280
Old Net Income	$10880
Change in operating income	$400