Magnum Manufacturing had sales revenue last year of $100,000, direct manufacturing costs of $60,000, and indirect manufacturing costs of $20,000. If Magnum expects revenues to increase by 10% for the upcoming year, with direct manufacturing costs maintaining the same percentage relationship to sales as in the previous year, and the indirect manufacturing costs remaining unchanged, what will the expected profit margin be for Magnum during the upcoming year?
A) $20,000
B) $40,000
C) $44,000
D) $24,000

Question

Quizplus · Accepted Answer

Direct manufacturing costs ÷ Sales = $60,000 ÷ $100,000 = 60%; Expected Sales = $100,000 x (1 + 10%) = $110,000, Expected direct manufacturing costs = (Expected sales, $110,000 x 60% = $66,000; Sales - Direct Costs - Indirect Manufacturing Costs = Profit Margin; $110,000 - $66,000 - $20,000 = $24,000

Magnum Manufacturing Had Sales Revenue Last Year of $100,000, Direct