The income statement for Symbiosis Manufacturing Company for 2014 is as follows: If sales increase by $60,000, what will happen to profit?

Question

The income statement for Symbiosis Manufacturing Company for 2014 is as follows:  If sales increase by $60,000, what will happen to profit?

Quizplus · Accepted Answer

To calculate the answer, we need to use the contribution margin ratio, which is calculated by dividing the contribution margin (sales revenue minus variable expenses) by sales revenue.

Contribution margin ratio = ($750,000 - $450,000) / $750,000 = 0.4

This means that for every dollar of sales, 40 cents is available to cover fixed expenses and profit.

If sales increase by $60,000, the total sales revenue will be:

$750,000 + $60,000 = $810,000

The new contribution margin will be:

$810,000 x 0.4 = $324,000

The total fixed expenses remain the same at $240,000.

Therefore, the new profit will be:

$324,000 - $240,000 = $84,000

The increase in profit is:

$84,000 - $60,000 = $24,000

Therefore, the answer is D (increase by $24,000).

The Income Statement for Symbiosis Manufacturing Company for 2014 Is