Question

In 2020, the Merkel Company had revenues of $2,600,000 and costs of $2,100,000. During 2021, Merkel will be introducing a new product line that is expected to increase sales revenue by $260,000 and costs by $172,000. Assuming no changes are expected for the other products, the operating profits are expected to increase by: Multiple Choice a. $588,000. b. $260,000. c. $172,000. d. $88,000.

Answer 1

d. $88,000

Step-by-step explanation:

In 2020, Merkel company's

Revenue = $2,600,000

Cost = $2,100,000

Operating profits = Revenue - Cost

= $2,600,000 - $2,100,000

= $500,000

In 2021, the company's;

Revenue increases by $260,000

New revenue = $260,000 + $2,600,000 = $2,860,000

New Cost = $2,100,000 + $172,000 = $2,272,000

New Operating profits = $2,860,000 - $2,272,000

= $588,000

Expected increase in Operating profits = $588,000 - $500,000

= $88,000

The expected increase in operating profit amounts to $88,000.