Question

In: Accounting

The current sales of a company are 5000 units at $65 per unit. Total variable expenses...

The current sales of a company are 5000 units at $65 per unit. Total variable expenses and fixed expenses are $200,000 and $104,800 respectively. If sales unit increase by 4% and fixed expenses remain unchanged, estimate the percentage change in net operating income.

a. 80.16%

b. 24.75%

c. 25%

d. 4%

Solutions

Expert Solution

Current position

Number of units sold = 5,000

Selling price per unit = $65

Total variable expenses = $200,000

Total fixed expenses = $104,800

Variable expense per unit = Total variable expenses/Number of units sold

= 200,000/5,000

= $40

Income statement

sales (5,000 x 65)	325,000
Variable expense (5,000 x 40)	-200,000
Contribution margin	125,000
Fixed expense	-104,800
Operating income	$20,200

New position

Increase in sales unit = 4%

= 5,000 x 4%

= 200

Sales units = 5,000 + 200

= 5,200

Income statement

sales (5,200 x 65)	338,000
Variable expense (5,200 x 40)	-208,000
Contribution margin	130,000
Fixed expense	-104,800
Operating income	$25,200

Change in operating income = New operating income - Old operating income

= 25,200 - 20,200

= $5,000

Percentage Change in operating income = Change in operating income/Old operating income

= 5,000/20,200

= 24.75%

Correct option is (b)

ekkarill92 answered 1 year ago

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