Question

Markham Company has a contribution margin ratio of 22%. The company is considering a proposal that will increase sales by $180,000.

What increase in profit can be expected assuming total fixed costs increase by $21,000?

Answer 1

Effect on income= $18,600 increase

Step-by-step explanation:

Giving the following information:

Markham Company has a contribution margin ratio of 22%.

The company is considering a proposal that will increase sales by $180,000.

Increase in total fixed costs= $21,000

To calculate the effect on income, we need to determine the effect of the increase in sales and deduct the fixed costs:

Increase on income= 180,000*0.22= 39,600

Increase on fixed costs= (21,000)

Effect on income= $18,600