Question

You have been provided with the following information: Total Sales $ 70,000 Less variable expenses 45,000...

You have been provided with the following information:

Total
Sales $ 70,000
Less variable expenses 45,000
Contribution margin 25,000
Less fixed expenses 15,000
Operating profit $ 10,000


If sales increase by 20%, what level of fixed costs will yield a 30% increase in profits?

$10,500.

$17,000.

$6,000.

$18,000.

Business   Accounting   
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Homework Answers

Answer #1

The question asks for the fixed expense amount if operating income increased by 30% and sales increases by 20%. with sales increasing by 20%, variable expenses will be increased by the same proportion because variable cost are cost that change relative to change in sales.

Sales ( 70000*120%) $84000
less: Variable cost (45000*120%) $54000
Contribution margin $30000
Fixed expenses $17000
Operating profit (10000*130%) $13000

just deduct operating income from contribution margin to get the new fixed expense.

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