Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}
\text {Sales}&&\$3,500,000\
\text {Cost of sales:}\
\text { Direct Material } & \$ 500,000 \
\text { Direct labor } & 250,000 \
\text { Variable Overhead } & 275,000 \
\text { Fixed Overhead } & 600,000&1,625,000\
\text { Gross Profit}&&\$1,875,000\
\text { Selling and General \& Admin. Exp.}\
\text { Variable}&750,000 \
\text { Fixed}&250,000&1,000,000\
\text { Operating Income }&&\$875,000
\end{array}$
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For the coming year, the management of Evergreen Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in all variable costs, and a $45,000 increase in fixed costs.
The operating profit for next year would be:
A) $477,500.
B) $492,500.
C) $552,500.
D) $831,250.

Question

Quizplus · Accepted Answer

Sales decrease by 5% to $3,325,000. Variable costs increase by 10%: Direct Material $550,000, Direct Labor $275,000, Variable Overhead $302,500, Variable SGA $825,000. Fixed costs increase by $45,000: Fixed Overhead $645,000, Fixed SGA $295,000. Total costs = $2,847,500. Operating Income = $3,325,000 - $2,847,500 = $477,500.

Evergreen Corporation Manufactures Circuit Boards and Is in the Process