A tile manufacturer has supplied the following data:
-If the company increases its unit sales volume by 3% without increasing its fixed expenses,then total net operating income should be closest to:

Question

A tile manufacturer has supplied the following data: 
-If the company increases its unit sales volume by 3% without increasing its fixed expenses,then total net operating income should be closest to:

Quizplus · Accepted Answer

To calculate the increase in net operating income, we need to use the contribution margin formula:

Contribution margin = Sales - Variable expenses

Assuming that variable expenses remain constant, an increase of 3% in unit sales volume will increase sales revenue by 3%. Therefore, the contribution margin will also increase by 3%.

The fixed expenses will remain constant, so the entire increase in contribution margin will flow through to the net operating income.

Mathematically:

Increase in net operating income = 3% x Total contribution margin

= 3% x (Total sales - Total variable expenses)

= 3% x ($3,849,750 - $2,361,500)

= $49,445

Adding this increase to the current net operating income of $66,035 gives us the new total net operating income:

Total net operating income = $66,035 + $49,445 = $115,480

Therefore, the best choice is C, $115,480.

A Tile Manufacturer Has Supplied the Following Data