Information concerning Lynch Corporation's Product A follows:
Sales $ \$ 400,000 $
Variable costs 300,000
Fixed costs 50,000

Assuming that Lynch increased sales of Product A by 25 percent,what should the profit from Product A be?
A)$ 50,000
B)$ 62,500
C)$ 75,000
D)$170,000

Question

Information concerning Lynch Corporation's Product A follows:
Sales                                      $ \$ 400,000 $
Variable costs                          300,000
Fixed costs                                50,000

Assuming that Lynch increased sales of Product A by 25 percent,what should the profit from Product A be?
A)$ 50,000
B)$ 62,500
C)$ 75,000
D)$170,000

Quizplus · Accepted Answer

With a 25% increase in sales, sales become $500,000 (400,000 * 1.25). Variable costs, which are directly proportional to sales, also increase by 25% to $375,000 (300,000 * 1.25). Fixed costs remain unchanged at $50,000. The new profit is calculated as: New Sales ($500,000) - New Variable Costs ($375,000) - Fixed Costs ($50,000) = $75,000.

Information Concerning Lynch Corporation's Product a Follows: Sales &Nbsp; &Nbsp; $400,000 \$ 400,000 $400,000

Information Concerning Lynch Corporation's Product a Follows:
Sales &Nbsp; &Nbsp; $\$ 400,000$