Question

McKnight Enterprises has the following operating profit:

Sales                                                       $400,000

Variable Costs                                         160,000

Contribution Margin                             $240,000

Fixed Costs                                              140,000

Operating Profit                                    $100,000

The company could increase revenues by 10% by reducing sales discounts by 10%. There will be no changes in variable or fixed costs. What would be the percentage increase in operating profits?

	Initial	With 10% Revenue Increase
Net sales revenues	$400,000	Enter Answer Here
Variable Costs	$160,000	Enter Answer Here
Contribution Margin	$240,000	Enter Answer Here
Fixed Costs	$140,000	Enter Answer Here
Operating Profit	$100,000	Enter Answer Here
% Change in Operating Profit		Enter Answer Here

Answer 1

	Initial	with 10% increase
Sales revenue	400,000	(400,000*110%) = 440,000
Variable costs	160,000	160,000
Contribution margin	240,000	280,000
Fixed cost	140,000	140,000
Operating profit	100,000	140,000
% Change in o profit		(140,000-100,000)/100,000 = 40%