Dunbar Manufacturing's variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $55000. If sales are expected to increase $100000 by how much will the company's net income increase?
A) $45000
B) $70000
C) $30000
D) $15000

Question

Quizplus · Accepted Answer

The increase in sales is $100,000, and the variable costs are 30% of sales, so the increase in variable costs is $30,000 (30% of $100,000). The contribution margin increase is $70,000 ($100,000 - $30,000). After subtracting the advertising cost of $55,000, the net income increases by $15,000 ($70,000 - $55,000).

Dunbar Manufacturing's Variable Costs Are 30% of Sales