Question

Oriole Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $47 throughout the country to loyal alumni of over 3,700 schools. Oriole’s variable costs are 42% of sales; fixed costs are $116,000 per month.

Oriole currently sells 143,000 blankets per year. If sales volume were to increase by 15%, by how much would operating income increase? (Round answer to 0 decimal places, e.g. 5,275.)

Answer 1

• All working forms part of the answer
• Current sales = 143,000

Increase in sale = 15%

New Increased sales = 143000 + 15% = 164,450

• Working

Working		Current sales volume	Increased sales volume
A	No. of blankets	143,000	164,450
B = A x $ 47	Sales	$                             6,721,000.00	$            7,729,150.00
C = B x 42%	Variable costs	$                             2,822,820.00	$            3,246,243.00
D = B - C or B x 58%	Contribution margin	$                             3,898,180.00	$            4,482,907.00
E	Fixed cost (annual)	$                             1,392,000.00	$            1,392,000.00
F = D - E	Operating Income	$                             2,506,180.00	$            3,090,907.00

• Answer

Working		Operating Income
A	Current sales volume	$                             2,506,180.00
B	Increased sales volume	$                             3,090,907.00
C = B - A	Operating Income would increase by	$                                 584,727.00

Operating Income would increase by $ 584,727