Question

Ivanhoe Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $45 throughout the country to loyal alumni of over 3,500 schools. Ivanhoe’s variable costs are 41% of sales; fixed costs are $118,000 per month.

Ivanhoe currently sells 130,000 blankets per year. If sales volume were to increase by 16%, by how much would operating income increase? (Round answer to 0 decimal places, e.g. 5,275.)

Answer 1

CALCULATION OF OPERATING INCOME IN BOTH CASE
	Current Income	Increase Sales Volume
Sales	$58,50,000	$67,86,000
	(130,000 X $ 45)	($585,000 X 1.16)
Less: Variable Cost	$23,98,500	$27,82,260
	(41% of $ 5,850,000)	(41% of $ 6,786,000)
Contribution Margin	$34,51,500	$40,03,740
Less: Fixed Expenses	$14,16,000	$14,16,000
	(118,000 X 12 Month)
Net Operating Income	$20,35,500	$25,87,740
Increase in operating income
CALCULATION OF INCREASE IN OPERATING INCOME
IF sales volument increase by 16% than operating income =	$25,87,740
Less: Current Operating income	$20,35,500
Increased in operating income	$5,52,240
Answer = $ 552,240