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Use the following information to answer the questions below. Company 1 Company 2 Sales $80,000 $50,000 Variable Costs 20,000
A. 48% B. 70% C. 90% D. 60% 1. If Company 1s sales increase by 30%, its operating income E. 16% will increase by what percen
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Answer #1

Requirement 1:

Operating income = $38,000

Calculations:

Sales [$80,000 x 130%] $ 104,000
Variable costs [$104,000 x 25%] $ 26,000
Contribution margin $ 78,000
Fixed Costs $ 40,000
Operating Income $ 38,000

Requirement 2:

Operating income = $33,750

Calculations:

Sales [$50,000 x 130%] $ 65,000
Variable cost [$65,000 x 20%] $ 16,250
Contribution margin $ 48,750
Fixed cost $ 15,000
Operating income $ 33,750

Requirement 3:

Company 1 profit will have a greater change.

Calculations:

Company 1 Company 2
Sales [$80,000 x 70%],[$50,000 x 70%] $ 56,000 $ 35,000
Variable costs [$56,000 x 25%],[$35,000 x 20%] $ 14,000 $ 7,000
Contribution margin $ 42,000 $ 28,000
Fixed Costs $ 40,000 $ 15,000
Operating Income $ 2,000 $ 13,000
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