Al's Brake Shop had sales revenues and operating costs in 2014 of $650,000 and $525,000,respectively.In 2015,Al's plans to expand the services it provides to customers to include lubrication services.Revenues are expected to increase by $85,000 and operating costs by $50,000 as a result of this expansion.Assuming that there are no changes to the existing brake business,what is the amount of operating profits that are expected be earned in 2015?

Question

Quizplus · Accepted Answer

Operating profit is calculated by subtracting operating costs from revenues. 
Operating profit in 2014 = $650,000 - $525,000 = $125,000 
In 2015, with the expansion of services, revenues are expected to increase by $85,000 to a total of $735,000 ($650,000 + $85,000). 
Operating costs are expected to increase by $50,000 to a total of $575,000 ($525,000 + $50,000). 
Operating profit in 2015 = $735,000 - $575,000 = $160,000. So the answer is C.

Al's Brake Shop Had Sales Revenues and Operating Costs in 2014