Question

Variable costs as a percentage of sales for Lemon Inc. are 71%, current sales are $526,000, and fixed costs are $178,000. How much will operating income change if sales increase by $45,800?

Answer 1

There will be a operating loss of $12,178

Explanation:

Variable costs are those will vary will the change in sale or activity level e.g material cost, labor cost etc.

Fixed costs are those which remains fix and does not vary with the change in sale or activity level.

As per Given Data

Sales = $526,000

Variable Cost = 71% of Sales

Fixed Cost = $178,000

As per Given Condition

Revised Sales = $526,000 + $45,800 = $571,800

Net Income Calculations :

Sales $571,800

- Variable cost 71% $405,978

- Fixed Cost $178,000

= Operating loss $12,178