Homework Answers
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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