Dunbar Manufacturing's variable costs are 30% of sales.The company is contemplating an advertising campaign that will cost $44,000.If sales are expected to increase $80,000, by how much will the company's net income increase?
A)$36,000
B)$56,000
C)$24,000
D)$12,000

Question

Quizplus · Accepted Answer

The increase in sales is $80,000, and variable costs are 30% of sales, so variable costs will increase by $24,000 (30% of $80,000). The increase in contribution margin is $80,000 - $24,000 = $56,000. After subtracting the advertising cost of $44,000, the net income increase is $56,000 - $44,000 = $12,000.

Dunbar Manufacturing's Variable Costs Are 30% of Sales