A company has provided the following data: $$\begin{array} { | l | l | }
\hline \text { Sales } & 3,000 \text { units } \
\hline \text { Sales price } & \$ 70 \text { per unit } \
\hline \text { Variable cost } & \$ 50 \text { per unit } \
\hline \text { Fixed cost } & \$ 25,000 \
\hline
\end{array}$$ If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net income will:

Question

A company has provided the following data: $$\begin{array} { | l | l | } 
\hline \text { Sales } & 3,000 \text { units } \
\hline \text { Sales price } & \$ 70 \text { per unit } \
\hline \text { Variable cost } & \$ 50 \text { per unit } \
\hline \text { Fixed cost } & \$ 25,000 \
\hline
\end{array}$$ If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net income will:

Quizplus · Accepted Answer

The original contribution margin per unit is $20 ($70 - $50). A 10% increase makes it $22. The total contribution margin is now $66,000 (3,000 units * $22). The fixed cost decreases by 20% to $20,000. The new net income is $46,000 ($66,000 - $20,000), an increase of $11,000 from the original $35,000.

A Company Has Provided the Following Data If the Dollar Contribution Margin Per Unit Is Increased by l