The following income statements are provided for two companies operating in the same industry: $\begin{array}{|l|c|c|}
\hline&\text { Felix Company}& \text {Jinx Company }\
\hline\text { Reverule } & \$ 200,000 & \$ 200,000 \
\hline \text { Variable costs } & (25,000) & (70,000) \
\hline \text { Contribution margin } & 175,000 & 130,000 \
\hline \text { Fixed costs } & (70,000) & (25,000) \
\hline \text { Net income } & \$ 105,000 & \$ 105,000\
\hline
\end{array}$

Assuming sales increase by $1,000, select the correct statement from the following:
A)Felix's net income will be more than Jinx's.
B)Only Felix will experience an increase in profit.
C)Felix's net income will increase by $250.
D)Jinx's net income will increase by 6%.

Question

The following income statements are provided for two companies operating in the same industry: $\begin{array}{|l|c|c|}
\hline&\text { Felix Company}& \text {Jinx Company }\
\hline\text { Reverule } & \$  200,000 & \$  200,000 \
\hline \text { Variable costs } &  (25,000) &  (70,000) \
\hline \text { Contribution margin } & 175,000 & 130,000 \
\hline \text { Fixed costs } & (70,000) & (25,000) \
\hline \text { Net income } & \$  105,000 & \$  105,000\
\hline
\end{array}$

Assuming sales increase by $1,000, select the correct statement from the following:
A)Felix's net income will be more than Jinx's.
B)Only Felix will experience an increase in profit.
C)Felix's net income will increase by $250.
D)Jinx's net income will increase by 6%.

Quizplus · Accepted Answer

Comparing the two companies' income statements, we can see that Felix has a higher profit margin (net income/sales) than Jinx. So, for a $1,000 increase in sales, Felix will earn more net income than Jinx. Therefore, option A is correct. Option B is incorrect because we cannot determine if Felix is the only company that will experience an increase in profit. Option C is incorrect because we cannot determine the exact increase in Felix's net income without more information. Option D is incorrect because Jinx's net income increase cannot be determined based on the information given.

The Following Income Statements Are Provided for Two Companies Operating