Azuki Corporation operates in two sales territories, Urban and Rural. Data concerning last year's operations appear below: Azuki's common fixed expenses were $25,000 last year.
If Urban sales were 10% higher last year, by approximately how much would Azuki's net operating income have increased? (Assume no change in selling prices, unit variable expenses, or total fixed expenses.)
A) $4,400
B) $6,400
C) $11,200
D) $32,000

Question

Azuki Corporation operates in two sales territories, Urban and Rural. Data concerning last year's operations appear below:  Azuki's common fixed expenses were $25,000 last year.
If Urban sales were 10% higher last year, by approximately how much would Azuki's net operating income have increased? (Assume no change in selling prices, unit variable expenses, or total fixed expenses.)
A) $4,400 
B) $6,400 
C) $11,200 
D) $32,000

Quizplus · Accepted Answer

Urban Sales Territory:
Segment CM ratio = Segment contribution margin ÷ Segment sales
= $112,000 ÷ $320,000 = 0.35
Change in segment contribution margin = Segment CM ratio × Change in segment sales
= 0.35 × (0.10 × $320,000) = 0.35 × $32,000 = $11,200

Azuki Corporation Operates in Two Sales Territories, Urban and Rural