Question

Spice Inc.'s unit selling price is $53, unit variable costs are $37, fixed costs are $106,000, and current sales are 10,400 units. How much will operating income change if sales increase by 5,300 units?

Answer 1

Calculation of current operating income:
Sales Revenue (10,400 units * $53 each)	$551,200
Less: Variable costs (10,400 units * $37 each)	($384,800)
Contribution Margin	$166,400
Less: Fixed costs	($106,000)
Operating income	$60,400
Operating income if sale units increases by 5,300 units -
Sales Revenue (15,700 units * $53 each)	$832,100
Less: Variable costs (15,700 units * $37 each)	($580,900)
Contribution Margin	$251,200
Less: Fixed costs	($106,000)
Operating income	$145,200
The operating income changes by $84,800 ($145,200 - $60,400).