You have been provided with the following information:
$$\begin{array} { | l | r | }
\hline & \text { Total } \
\hline \text { Sales } & \$ 90,000 \
\hline \text { Less Variable expenses } &\underline{ 54,000 }\
\hline \text { Contribution margin } & 36,000 \
\hline \text { Less fixed expenses } & \underline { 24,000 } \
\hline \text { Operating profit } & \$ 12,000 \
\hline
\end{array}$$If sales increase by 10%,what level of fixed costs will yield a 20% increase in profits?
A) $14,400.
B) $19,200.
C) $25,200.
D) $26,400.

Question

You have been provided with the following information: 
$$\begin{array} { | l | r | } 
\hline & \text { Total } \
\hline \text { Sales } & \$ 90,000 \
\hline \text { Less Variable expenses } &\underline{ 54,000 }\
\hline \text { Contribution margin } & 36,000 \
\hline \text { Less fixed expenses } & \underline { 24,000 } \
\hline \text { Operating profit } & \$ 12,000 \
\hline
\end{array}$$If sales increase by 10%,what level of fixed costs will yield a 20% increase in profits?
A) $14,400.
B) $19,200.
C) $25,200.
D) $26,400.

Quizplus · Accepted Answer

The correct answer is C.If sales increase by 10%, the new sales will be $90,000 * 1.10 = $99,000. The contribution margin ratio is 36,000 / 90,000 = 0.4. Therefore, the new contribution margin will be $99,000 * 0.4 = $39,600. To achieve a 20% increase in profits, the new operating profit must be $12,000 * 1.20 = $14,400. Therefore, the new fixed costs must be $39,600 - $14,400 = $25,200.

You Have Been Provided with the Following Information If Sales Increase by 10%,what Level of Fixed Costs Will