Question

The Sales are $98,000. The Variable Costs are $42,000. The Fixed Costs are $21,000. Calculate the operating break-even in sales dollars. If the Sales increase by 28%, the Operating Income will:

Select one:

a. increase by 28%

b. decrease by 42.4%

c. decrease by 28%

d. increase by 42.4%

Answer 1

Present sales =$98000

Present variable cost=$42000

Contribuition =sales - variable cost

=$98000-$42000

=$56000

Fixed cost=$21000

Operating break even sales =(Fixed cost /Contribuition )*100

=($21000/$56000)*100

=37.5%

Sales after 28% increase will be =$98000+($98000*28/100)

=$98000+$27440

=$125440

Variable cost after 28% increase will be =$42000+ ($42000*28/100)

=$42000+$11760

=$53760

Contribuition/operating income after increase in sales =125440-53760

=$71680

%Increase(decrease ) in operating income =( $71680-$56000)/$56000 *100

=28%

Therefore

Operating break even sales is 37.5%

And increase in operating profit will be 28% so the answer is option (a)