Question

Variable costs as a percentage of sales for Lemon Inc. are 65%, current sales are $688,000. and fixed costs are $207,000. How much will operating income change if sales increase by $37,000? a.$12,950 increase b.$24,050 decrease c.$12,950 decrease d.$24,050 increase

Answer 1

a.$12,950 increase

Step-by-step explanation:

If sales increases by $37,000; then Variable cost will increase by $37,000*65% = $24,050

Variable cost is 65% of sales but Fixed cost will not increase on increase in sales.

Therefore, Operating income will increase by:

= $37,000 - $24,050

= $12,950