The following information relates to Paterno Company: $\begin{array} { | l | r | }
\hline \text { Sales revenue } & \$ 10,000,000 \
\hline \text { Contribution margin } & 4,000,000 \
\hline \text { Net income } & 1,000,000 \
\hline
\end{array}$ If a manager at Paterno desired to determine the percentage impact on net income of a given percentage change in sales, the manager would multiply the percentage increase/decrease in sales revenue by:
A)0.25.
B)0.40.
C)2.50.
D)4.00.
E)10.00.

Question

The following information relates to Paterno Company: $\begin{array} { | l | r | } 
\hline \text { Sales revenue } & \$ 10,000,000 \
\hline \text { Contribution margin } & 4,000,000 \
\hline \text { Net income } & 1,000,000 \
\hline
\end{array}$ If a manager at Paterno desired to determine the percentage impact on net income of a given percentage change in sales, the manager would multiply the percentage increase/decrease in sales revenue by:
A)0.25.
B)0.40.
C)2.50.
D)4.00.
E)10.00.

Quizplus · Accepted Answer

The contribution margin ratio is 40%, which means that for every $1 change in sales revenue, net income will change by $0.40.

The Following Information Relates to Paterno Company If a Manager at Paterno Desired to Determine the Percentage