Question

Spice Inc.'s unit selling price is $54, the unit variable costs are $32, fixed costs are $118,000, and current sales are 9,600 units. How much will operating income change if sales increase by 5,500 units?

Answer 1

$99,000

Step-by-step explanation:

By contribution margin analysis, operation income is the total contribution margin minus fixed costs.

The total contribution margin is the per-unit contribution margin multiplied by sales units.

For spice Inc., contribution margin per unit is selling price - variable costs.

=$52-$34= $18

operating income at 9600 units will be

=(9600 x 18)-118,000= $54,000

an increase of 5500 units

=18 (9600 +5500)-118,000= $153,800

increase in operating income will change by =$99,000