The income statement for Symbiosis Manufacturing Company for 2016 is as follows: If sales increase by 1,000 units, what will happen to profit?

Question

The income statement for Symbiosis Manufacturing Company for 2016 is as follows:  If sales increase by 1,000 units, what will happen to profit?

Quizplus · Accepted Answer

We need to look at the contribution margin per unit to calculate the impact of a 1,000 unit increase in sales on profit. 
Contribution margin per unit = selling price per unit - variable cost per unit 
= $40 - $20 
= $20 
Therefore, a 1,000 unit increase in sales will increase the contribution margin by:
$20 * 1,000 = $20,000 
Since the company has a contribution margin ratio of 40% (as given in the income statement), this increase in contribution margin will result in an increase in profit of:
40% * $20,000 = $8,000 
Therefore, the correct answer is B, increase by $4,800.

The Income Statement for Symbiosis Manufacturing Company for 2016 Is