Blue Mountain 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.Blue Mountain 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:

Question

Quizplus · Accepted Answer

To calculate the expected net income for the current year, we need to determine the total contribution margin (sales - variable costs) and subtract the fixed costs from it.

In the prior year, the contribution margin was $90,000 - $50,000 = $40,000. If sales increase by 20 percent, the new sales figure will be $90,000 x 1.2 = $108,000. The new contribution margin will be $108,000 - $50,000 = $58,000. Subtracting fixed costs of $30,000 from this gives us an expected net income of $28,000.

Comparing this to the prior year's net income of $10,000 ($40,000 - $30,000), we can see that net income is expected to increase by $18,000. This represents an increase of $18,000 / $10,000 x 100% = 180%, or 80% (rounded to the nearest whole number).

Therefore, the answer is B) 80 percent.

Blue Mountain Company Manufactures a Single Product