Question

6. Kramer Enterprises reports year-end information as follows: Sales in units 336,000 Sales Variable Costs Contribution margin Fixed costs Operating income 2,016,000 1,344,000 672,000 546,000 126,000 Kamer is developing next year's budget. Next year, the company is planning to increase selling prices by 10%, and as a result, expects a decrease in sales volume of 5%. Calculate Kramer's expected operating income for next year (5 points):

Answer 1

Ans.	First of all we need to calculate the current level of selling price and variable
	cost per unit.
	Selling price = Total sales / Sales in units
	$2,016,000 / 336,000
	$6.00 per unit
	Variable cost per unit = Total Variable cost / Sales in units
	$1,344,000 / 336,000
	$4.00 per unit
	New selling price [$6 + ($6 * 10%)] = $7.60 per unit
	New sales volume [336,000 - (336,000 * 5%)] = 319,200 units
	Particulars	Total
	Sales (319,200 *$7.60)	$2,425,920
	Variable expenses (319,200 * $4)	$1,276,800
	Contribution margin	$1,149,120
	Fixed expenses	$546,000
	Net operating income	$603,120
	*Fixed costs always remain constant.