Zipee Inc.'s unit selling price is $90, the unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units?
A) $125,000 decrease
B) $175,000 increase
C) $75,000 increase
D) $247,500 increase

Question

Quizplus · Accepted Answer

Current sales revenue = $90 x 12,000 = $1,080,000 
Current total variable costs = $40.50 x 12,000 = $486,000 
Current contribution margin = $90 - $40.50 = $49.50 
Current operating income = ($1,080,000 - $486,000) - $170,000 = $424,000

If sales increase by 5,000 units:

New sales revenue = $90 x 17,000 = $1,530,000 
New total variable costs = $40.50 x 17,000 = $688,500 
New contribution margin = $90 - $40.50 = $49.50 
New operating income = ($1,530,000 - $688,500) - $170,000 = $671,500

Operating income will increase by $671,500 - $424,000 = $247,500.

Therefore, the correct answer is D.

Zipee Inc'S Unit Selling Price Is $90, the Unit Variable Costs