The Rial Company's income statement for June is given below:
-If sales for Division F increase $40,000 with a $10,000 increase in the Division's traceable fixed costs,the overall company net operating income should:
A)increase by $30,000
B)increase by $6,000
C)increase by $2,889
D)decrease by $4,000

Question

The Rial Company's income statement for June is given below:
-If sales for Division F increase $40,000 with a $10,000 increase in the Division's traceable fixed costs,the overall company net operating income should:
A)increase by $30,000 
B)increase by $6,000 
C)increase by $2,889 
D)decrease by $4,000

Quizplus · Accepted Answer

CM ratio = Contribution margin F1F1F1S1F1F1F10 Sales = $88,000 F1F1F1S1F1F1F10 $220,000 = 0.40
Change in contribution margin = CM ratio F1F1F1S1F1F1F10 Change in sales = 0.40 F1F1F1S1F1F1F10 $40,000 =
Change in net operating income = Change in contribution margin - Increase in traceable fixed costs
= $16,000 - $10,000 = $6,000

The Rial Company's Income Statement for June Is Given Below