Operating results for Division A of Alpha Company during 2019 are as follows:
Sales $400,000
Cost of goods sold 248,000
Gross profit $152,000
Direct expenses $27,000
Common expenses 45,000
Total expenses $72,000
Net income $80,000
If Division A would maintain the same quantity of product sold while raising selling prices by 5% and making additional advertising expenditures of $30,000, what would be the effect on the Division's net income? (Ignore income taxes in your calculations.)
A) Net income would increase by $10,000.
B) Net income would increase by $20,000.
C) Net income would increase by $30,000.
D) Net income would decrease by $10,000.
E) Net income would decrease by $20,000.

Question

Quizplus · Accepted Answer

Net increase in revenue $20,000 ($400,000 x 5%)
Net increase in direct expense (30,000)
Net decrease in profit ($10,000)

Operating Results for Division a of Alpha Company During 2019