You have been provided with the following information: If sales increase by 10%,what level of fixed expenses will yield a 20% increase in profits?
A)$14,400.
B)$19,200.
C)$25,200.
D)$26,400.

Question

Quizplus · Accepted Answer

Let's assume the initial sales to be x and the initial profit to be y. 
So, the new sales will be 1.1x (as sales increased by 10%). 
Now, we need to find out the level of fixed expenses such that the profit increases by 20%. 
Profit = Revenue - Expenses 
Initially, Profit (y) = x - Expenses 
New Profit (1.2y) = 1.1x - Expenses 
Profit increased by 20% means 
1.2y = 1.1x - Expenses 
0.2y = 0.1x - Expenses/6 
As we want to find out the level of fixed expenses, we will solve this equation for Expenses. 
Expenses = (0.1x - 0.2y)6 
Substituting the values of x and y, we get 
Expenses = (0.1 * Initial Sales - 0.2 * Initial Profit)6 
Expenses = (0.1 * 72000 - 0.2 * 24000)6 
Expenses = 25200 
Therefore, the level of fixed expenses that will yield a 20% increase in profits is $25,200.

You Have Been Provided with the Following Information: If Sales