Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. How much will operating income change if sales increase by $40,000?
A) $8,000 increase
B) $8,000 decrease
C) $30,000 decrease
D) $30,000 increase

Question

Quizplus · Accepted Answer

With variable costs at 80% of sales, a $40,000 increase in sales results in a $32,000 increase in variable costs (80% of $40,000). The remaining $8,000 ($40,000 - $32,000) contributes to covering fixed costs and then to operating income, leading to an $8,000 increase in operating income.

Variable Costs as a Percentage of Sales for Lemon Inc