Question

Waterways Continuing Problem-6 (Part 1) The vice-president of sales and marketing, Madison Tremblay, is trying to plan for the coming year in terms of production needs to meet the forecasted sales. The board of directors is very supportive of any initiatives that will lead to increased profits for the company in the upcoming year. Waterways markets a simple water controller and timer that it mass produces. During 2016, the company sold 332,500 units at an average selling price of $8 per unit. The variable expenses were $1,429,750, and the fixed expenses were $688,000.

Question: Fill in the blank

Answer 1

during 2016:

sales = 332500 x $8 = $2660000

contribution margin ratio = ($2660000 - $1429750)/$2660000 = 46.25%

net operating income = contribution margin - fixed costs

= ($2660000 x 46.25%) - $688000

= $542250

now,

for the upcoming year,

net income = [{(332500 + 64000) x $8} x 46.25%] - $688000

= $1467050 - $688000

= $779050

therefore,

income will increase by $236800