Sunshine Company manufactures a single product.In the prior year,the company had sales of $90,000,variable costs of $50,000,and fixed costs of $30,000.Sunshine expects its cost structure and sales price per unit to remain the same in the current year,however total sales are expected to increase by 20 percent.If the current year projections are realized,net income should exceed the prior year's net income by:
A)100 percent.
B)80 percent.
C)20 percent.
D)50 percent.

Question

Quizplus · Accepted Answer

Let's first calculate the prior year's net income:

Sales: $90,000

Variable costs: $50,000

Fixed costs: $30,000

Net income: $10,000 ($90,000 - $50,000 - $30,000)

Now, let's calculate the current year's expected net income:

Projected sales: $90,000 x 1.2 = $108,000

Variable costs: $50,000

Fixed costs: $30,000

Expected net income: $28,000 ($108,000 - $50,000 - $30,000)

To determine the percentage increase in net income, we can use the following formula:

Percentage increase = (Current year's net income - Prior year's net income) / Prior year's net income x 100%

Percentage increase = ($28,000 - $10,000) / $10,000 x 100%

Percentage increase = 180%

Therefore, the net income should exceed the prior year's net income by 80 percent (not 100 percent or 20 percent as the other answer choices suggest).

Sunshine Company Manufactures a Single Product