Question

Spice Inc.'s unit selling price is $46, unit variable costs are $36, fixed costs are $116,000, and current sales are 9,000 units.

How much will operating income change if sales increase by 5,500 units?

a.$90,000 decrease

b.$145,000 increase

c.$55,000 increase

d.$90,000 increase

Answer 1

Answer is “$55,000 increase”

Selling price per unit = $46
Variable cost per unit = $36
Increase in unit sales = 5,500

Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $46 - $36
Contribution margin per unit = $10

Increase in operating income = Contribution margin per unit * Increase in unit sales
Increase in operating income = $10 * 5,500
Increase in operating income = $55,000