Question

The income statement for Sapphire Manufacturing Company for 2018 is as follows: ​ Sales (20,000 units)...

The income statement for Sapphire Manufacturing Company for 2018 is as follows:

​

Sales (20,000 units)

$150,000
Variable expenses

50,000
Contribution margin

$100,000
Fixed expenses

  30,000
Operating income

$ 70,000

​

If sales increase by 2,000 units, what will happen to profit?

Select one:

a. Profit will increase by $13,000.

b. Profit will increase by $10,000.

c. Profit will decrease by $15,000.

d. Profit will decrease by $18,000.

Business   Accounting   
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Homework Answers

Answer #1

Correct Answer is : b. Profit will increase by $ 10000

Explanation:

Contribution Margin $ 100000

No of sales Unit (B) 20000

Contribution per unit (A/B) $ 5

Increased Sales units 2000

Increased contribution margin $ 10000

Note:

Increased contribution margin will be equal to the increased operating income because fixed cost shall not be deducted from the contribution Margin, Fixed cost will not with the increase in cost and hence it shall not be deducted in computing extra income.

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