Information concerning Clarkson Corporation's Product A follows: $\begin{array}{ll}
\text { Sales } & \$ 300,000 \
\text { Variable costs } & 240,000 \
\text { Fixed costs } & 40,000
\end{array}$ Assuming that Clarkson increased sales of Product A by 20 percent,what should the profit from Product A be?
A)$20,000
B)$24,000
C)$32,000
D)$80,000

Question

Quizplus · Accepted Answer

The original profit is $20,000 ($300,000 - $240,000 - $40,000). A 20% increase in sales is $60,000, leading to $360,000 in sales. Variable costs increase by 20% to $288,000. The new profit is $32,000 ($360,000 - $288,000 - $40,000).