Question

The Isbit Company has developed an income statement using a contribution margin format (refer to .pdf in Moodle). The projected income statement was based upon sales of 10,000 units. Isbit has capacity to produce 15,000 units per year. The sales manager believes the company could increase sales by 16% if advertising expenditures are increased by $16,000. What would the expected impact to income be? Select one: a. Operating income would go up by $13,200 b. Operating income would go up by $3,200 c. Operating income would go up by $29,200 d. Operating income would go up by $19,200 e. Operating income would decline so they should not pursue this initiative.

The Isbit Company has developed an income statement using a contribution margin format.

Revenues $200,000 Variable Costs: Variable manufacturing costs 60,000 Variable selling costs 20,000 _______ Contribution Margin $120,000 Fixed Costs: Fixed manufacturing costs $ 80,000 Fixed selling, general and administrative costs 30,000 ________ Income $ 10,000

The projected income statement was based upon sales of 10,000 units. Isbit has capacity to produce 15,000 units per year.

Management believes that by lowering the selling price to $17.50 per unit, the company can increase sales by 2,000 units. What would the expected impact to income be?

Select one:

a. Operating Income would decrease by $4000.

b. Operating Income would decrease by $6000.

c. Operating Income would increase by $10000.

d. There would be no impact to Operating Income.

Answer 1

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