Variable costs as a percentage of sales for Lemon Inc. are 78%, current sales are $524,000,...
Variable costs as a percentage of sales for Lemon Inc. are 78%, current sales are $524,000, and fixed costs are $192,000. How much will operating income change if sales increase by $38,300?
a.$8,426 decrease
b.$8,426 increase
c.$29,874 increase
d.$29,874 decrease
Homework Answers
Answer- If sales increase by $38300, operating income will increase by = $8426 (Option b).
Explanation- Operating income increase = Increased sales*Contribution margin ratio
= $38300*22%
= $8426
Contribution margin ratio= 1-Variable cost ratio
= 1.00-0.78
= 0.22 or 22%
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