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Computate Inc. produces microprocessors for laptops. Last year, the company recognized revenues of $4,000,000. Total costs...

Computate Inc. produces microprocessors for laptops. Last year, the company recognized revenues of $4,000,000. Total costs for the period were $2,000,000, of which $500,000 were fixed.

If sales were to increase by $150,000, by how much would Computate ’s operating income increase?

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Answer #1

Answer : Increase in Operating Income = $ 93,750 ( Answer)

Operating Income = Sales Revenue - Total Cost = 4,000,000 -2,000,000 =$2,000,000

Total Cost = Fixed Cost + Variable Cost

Fixed Cost = $500,000

Variable Cost = $ 1500,000

Variable Cost Ratio = Variable coat / Sales = 1500,000/4000,000 = 37.5 %

Sales increase by $150,000

Total Sales = 4150,000

Total Varaible Cost ( 4150,000*37.5%) =1,556,250

Total Fixed Cost    = 500,000

Operating income = 2,093,750

Increase in Operating Income = $2,093,750 -$2,000,000 = $ 93,750 (Answer)

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