Question

Company X currently has annual sales of $10,000,000, its variable costs are 55% of sales and total fixed costs $3,000,000. By how much will Company X's annual operating income increase if current sales increase by 12%?

Answer 1

Net Income when sales = $10,000,000.

Net Income = (Sales - Variable cost ratio ) - Fixed expenses => ($10,000,000 - 55%) - $3,000,000 = $1,5000,000.

When sales increases by 12%.

Revised sales = $10,000,000 + 12% = $11,200,000.

Particulars At Sales Sales less : Variable cost (55% of sales) Contribution Margin less : Fixed Expenses Net Operating Income Existing Revised Sales 10000000 11200000 $ 5500000 6160000 $ 4500000 5040000 $ 3000000 3000000 $ 1500000 2040000 $ Increase In Net Operating Income a Revised Operating Income b Existing Operating Income (a - b) Increased Net Operating Income 2040000 $ 1500000 $ 540000 $

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