Moylan Company has provided the following contribution margin income statement:
$$\begin{array} { | l | l | }
\hline \text { Sales } & \$ 777,000 \
\hline \text { Variable expenses } & \$ 504,000 \
\hline \text { Contribution margin } & \$ 273,000 \
\hline \text { Fixed expenses } & \$ 212,000 \
\hline \text { Operating income } & \$ 61,000 \
\hline
\end{array}$$ If the sales volume increases 20%, which of the following statements is correct?

Question

Moylan Company has provided the following contribution margin income statement:
$$\begin{array} { | l | l | } 
\hline \text { Sales } & \$ 777,000 \
\hline \text { Variable expenses } & \$ 504,000 \
\hline \text { Contribution margin } & \$ 273,000 \
\hline \text { Fixed expenses } & \$ 212,000 \
\hline \text { Operating income } & \$ 61,000 \
\hline
\end{array}$$ If the sales volume increases 20%, which of the following statements is correct?

Quizplus · Accepted Answer

When sales volume increases by 20%, variable expenses will also increase proportionally, but fixed expenses will remain unchanged. The contribution margin will increase by more than 20% because the fixed costs are spread over a larger number of units, leading to a more than proportional increase in operating income.

Moylan Company Has Provided the Following Contribution Margin Income Statement