Question

Spice inc.'s unit selling price is $52, the unit variable costs are $36, fixed costs are $117,000, and current sales are 10,400 units. how much will operating income change if sales increase by 5,300 units?

A) $110,400 increase
B) $190,800 increase
C) $95,400 increase
D) $47,700 increase

Answer 1

The operating income of Spice Inc. will increase by $84,800 if the sales volume increases by 5,300 units. This calculation utilizes the contribution margin per unit and the volume of increased sales, while keeping fixed costs the same.

Step-by-step explanation:

To calculate the change in operating income if sales increase by 5,300 units for Spice Inc., we need to look at the contribution margin per unit, which is the selling price minus the variable costs. The contribution margin in this case is $52 (unit selling price) - $36 (unit variable costs) = $16 per unit.

Now, if sales increase by 5,300 units, the increase in total contribution margin would be 5,300 units × $16 per unit = $84,800. However, since fixed costs remain unchanged, the increase in contribution margin directly translates to an increase in operating income.

So the correct answer is:

• Operating income will increase by $84,800 if sales increase by 5,300 units, which is not one of the provided options.