How much would Division 3's income from operations increase?
A)$150,000
B)$50,000
C)$100,000
D)$25,000

Question

Quizplus · Accepted Answer

From the information given in the question, we know that a 10% increase in production capacity can result in a 20% increase in sales revenue. If Division 3 increases production capacity by 20%, it can expect a 40% increase in sales revenue.

We are given that Division 3's current sales revenue is $250,000. A 40% increase in sales revenue would be $100,000. However, we know that cost of sales will increase by 60%, which means that Division 3 will incur an additional $60,000 in cost of sales.

Therefore, the increase in income from operations would be $100,000 - $60,000 = $40,000. However, the question asks how much Division 3's income from operations would increase if fixed costs remain the same. Since fixed costs are not mentioned to change, we can assume that they remain constant.

Therefore, the increase in income from operations would be $40,000 - $10,000 (10% of $100,000) = $30,000. However, we are asked to determine the dollar amount of the increase, and not the percentage increase, so the final answer is $30,000.

Hence, the correct answer is C.

How Much Would Division 3's Income from Operations Increase