Question

If the dollar contribution margin per unit is increased by 10%, total fixed expenses is decreased by 20%, and all other factors remain the same, net operating income will:

Answer 1

Operating profit increases by $11,000

Step-by-step explanation:

Missing word "A company has provided the following data: Sales 3,000 units Sales Price $70 per unit Variable Cost $50 per unit Fixed Cost $25,000"

Particulars Status quo

Sales $210,000 (3000*70)

Less: Variable cost $150,000 (3000*50)

Contribution margin $60,000

Less: Fixed costs $25,000

Operating profit $35,000

Alternate profit = Alternate contribution margin - Alternate fixed cost

Alternate profit = [(Status quo contribution margin + %change) − (Alternate fixed cost-%change)]

Alternate profit = ($60,000+10%)−($25,000−20%)

Alternate profit = $46,000

Change in profit = Alternate profit - Status quo profit

Change in profit = $46,000 - $35,000

Change in profit = $11,000

So, the operating profit increases by $11,000