Answer: $13, 658 increase
First, we need to calculate the current total variable costs:
Total Variable Costs = Sales x Variable Costs as a % of Sales
Total Variable Costs = $603,000 x 0.63
Total Variable Costs = $380,490
Next, we can calculate the current operating income:
Operating Income = Sales - Total Variable Costs - Fixed Costs
Operating Income = $603,000 - $380,490 - $202,000
Operating Income = $20,510
If sales increase by $37,400, the new sales figure will be $640,400 ($603,000 + $37,400). We can then calculate the new total variable costs:
New Total Variable Costs = New Sales x Variable Costs as a % of Sales
New Total Variable Costs = $640,400 x 0.63
New Total Variable Costs = $404,232
Finally, we can calculate the new operating income:
New Operating Income = New Sales - New Total Variable Costs - Fixed Costs
New Operating Income = $640,400 - $404,232 - $202,000
New Operating Income = $34,168
Therefore, the operating income will increase by $13,658 ($34,168 - $20,510) if sales increase by $37,400.