Question

In 2016, the TransUnion Company had consulting revenues of $1,000,000 while costs were $750,000. In 2017, TransUnion will be introducing a new service that will generate $150,000 in sales revenues and $60,000 in costs. Assuming no changes are expected for the other services, operating profits are expected to increase between 2016 and 2017 by: A) $250,000. B) $60,000. C) $90,000. D) $150,000.

Answer 1

C) $90,000

Step-by-step explanation:

Increase in operating profits from 2016 to 2017

Step 1: Calculate Operating Profits in 2016

Operating Profit = Revenues - Costs

= $1,000,000 - $750,000

= $250,000

Step 2: Calculate Operating Profits in 2017

The operating profit will reflect that there is an increase in operating profits by $150,000 and costs will also increase by $60,000

= ($1,000,000 + $150,000) - ($750,000+ $60,000)

= $1,150,000- $810,000)

= $340,000

Step 3: Calculate the operating profits increase

The formula is Operating profits for 2017 - the operating profits for 2016

= $340,000- $250,000

= $90,000