Murphy Company produces flash drives for computers which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During April 700 drives were sold. Fixed costs for April were $4 per unit for a total of $2800 for the month. How much does Murphy's operating income increase for each $1000 increase in revenue per month?
A) $700
B) $500
C) $14000
D) Not enough information to determine the answer.

Question

Quizplus · Accepted Answer

The contribution margin per flash drive is $20 (selling price) - $6 (variable cost) = $14. For each $1000 increase in revenue, the number of additional units sold is $1000 / $20 = 50 units. The increase in operating income is 50 units * $14 (contribution margin per unit) = $700.

Murphy Company Produces Flash Drives for Computers Which It Sells