Moylan Roofing Company has provided the following information: Which of the following statements is true,if the sales volume increases by 10%?

Question

Moylan Roofing Company has provided the following information:  Which of the following statements is true,if the sales volume increases by 10%?

Quizplus · Accepted Answer

Using the formula: Operating Income = Sales - Variable Expenses - Fixed Expenses 
We can calculate the current operating income: 
Operating Income = $280,000 - ($115,000 + $123,200) - $50,700 
Operating Income = $11,100

If the sales volume increases by 10%, the new sales figure will be: 
New Sales = $280,000 x 1.1 = $308,000

Using the same formula as above, we can calculate the new operating income: 
New Operating Income = $308,000 - ($126,500 + $123,200) - $50,700 
New Operating Income = $7,900

The change in operating income is: 
Change in Operating Income = New Operating Income - Operating Income 
Change in Operating Income = $7,900 - $11,100 = -$3,200

Therefore, operating income will decrease by $3,200 if the sales volume increases by 10%. However, the answer choices do not include this option. The closest option is B, which states that operating income will increase by $27,300. This is incorrect as calculated above.

Moylan Roofing Company Has Provided the Following Information: Which