Spice Inc.'s unit selling price is $60, the unit variable costs are $35, fixed costs are $125,000, and current sales are 10,000 units. How much will operating income change if sales increase by 8,000 units?
A) $150,000 decrease
B) $175,000 increase
C) $200,000 increase
D) $150,000 increase

Question

Quizplus · Accepted Answer

First, calculate the current operating income:

Current operating income = (unit selling price - unit variable cost) * current sales - fixed costs

Current operating income = ($60 - $35) * 10,000 - $125,000 = $225,000

Then, calculate the operating income if sales increase by 8,000 units:

New sales = 10,000 + 8,000 = 18,000 units

New operating income = ($60 - $35) * 18,000 - $125,000 = $425,000

The increase in operating income is:

Increase in operating income = New operating income - Current operating income

Increase in operating income = $425,000 - $225,000 = $200,000

Therefore, the correct answer is C) $200,000 increase.

Spice Inc'S Unit Selling Price Is $60, the Unit Variable Costs