Question

Income Statement of Base Corporation Sales Volume Present Sales $ 100,000 Variable expenses 50,000 Contribution margin 50,000 Fixed expenses 20,000 Net Operating income $ 30,000 Knowledge Check 01 If sales increase by $50,000, what will be the net operating income for the company? $25,000

Answer 1

The net operating income for the company after sales increase will be $55000.

The change in net operating income as a result of sales increase will be $25000.

Step-by-step explanation:

The net operating income of the company is calculated by deducting the variable and fixed expenses of operations from net sales.

The current net operating income is:

Net operating income = 100000 - 50000 - 20000 = $30000

• The fixed costs are the costs that will remain fixed in the short run. Thus, they will not change even if the sales revenue changes.
• The variable costs vary with the level of output/sales.

The variable costs will increase as a result of increase in sale.

The variable costs are 50% of sales = VC / sales = 50000 / 100000 = 50%

The new sales level is = $100000 + 50000 = $150000

As the variable costs are 50% of sales, the new variable costs will be = 150000 * 0.5 = $75000

The fixed costs will remain fixed at $20000.

The new net operating profit will be = 150000 - 75000 - 20000 = $55000

The change in operating profit will be = new Operating profit - old operating profit = 55000 - 30000 = $25000