Question

Sheridan Monograms sells stadium blankets that have been monogrammed with high school and university emblems. The blankets retail for $46 throughout the country to loyal alumni of over 3,800 schools. Sheridan’s variable costs are 42% of sales; fixed costs are $116,000 per month.

Sheridan currently sells 124,000 blankets per year. If sales volume were to increase by 15%, by how much would operating income increase?

Answer 1

Operating Income at Present Sales Volume: Sales Revenue (124000) x $46 $ 5,704,000.00 Less: Variable Cost ($5,704,000 x 42%) $ (2,395,680.00). Contribution Margin $ 3,308,320.00 Less: Fixed Costs (116,000.00) Operating Income $ 3,192,320.00 After Increase of Sales Volume by 15%: Revised Sales Revenue (124000+(124000x15%) x $46 $ 6,559,600.00 Less: Variable Cost ($6,559,600 x 42%) (2,755,032.00) Contribution Margin 3,804,568.00 Less: Fixed Costs (116,000.00) Operating Income $ 3,688,568.00 A A A Increase in Operating Income = ($3,688,568-$3,192,320)/$3,192,320 = 15.55% Operating Income increased by 15.55% if Sales Volume increased by 15%.