The European Electronics Company has 3 divisions. The following budgeted data is available.$\begin{array}{lccc}
&\text { German}&\text { Italian }&\text {Sweden }\
\text { Sales } &\text { 2,500 units } &\text { 2,500 units} &\text { 2,500 units } \
\text {Selling price } &\text { £ 80 per unit } &\text {£85 per unit } &\text { £ 90 per unit } \
\text { Variable expense } &\text { £ 35 per unit } &\text { £ 40 per unit } &\text { £ 38 per unit } \
\text {Fixed expense } &\text {£ 37,500 } &\text {£ 40,000 } &\text { £ 50,000 } \
\end{array}$

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Italian Division: If the sales volume decreases by 25%, the variable expense per unit increases by 15%, and all other data remain as in the budget, net operating income will be:

Question

The European Electronics Company has 3 divisions. The following budgeted data is available.$\begin{array}{lccc}
&\text { German}&\text { Italian }&\text {Sweden }\
  \text { Sales } &\text { 2,500 units } &\text {   2,500 units} &\text {  2,500 units } \
 \text {Selling price  } &\text { £ 80 per unit } &\text {£85 per unit  } &\text { £ 90 per unit  } \
 \text { Variable expense } &\text { £ 35  per unit } &\text { £ 40 per unit } &\text { £ 38 per unit  } \
 \text {Fixed expense  } &\text {£ 37,500  } &\text {£ 40,000   } &\text {  £ 50,000 } \
\end{array}$

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Italian Division: If the sales volume decreases by 25%, the variable expense per unit increases by 15%, and all other data remain as in the budget, net operating income will be:

Quizplus · Accepted Answer

To find the new net operating income, we need to adjust the budgeted figures according to the changes given:
- Sales volume decreases by 25%: 20,000 x 0.75 = 15,000 units
- Variable expense per unit increases by 15%: £60 x 1.15 = £69 per unit
- All other data remains the same.

Now we can calculate the new net operating income:
Sales revenue: 15,000 x £100 = £1,500,000
Variable expenses: 15,000 x £69 = £1,035,000
Contribution margin: £465,000
Fixed expenses: £400,000
Net operating income: £65,000

Compared to the budgeted net operating income of £98,125, this represents a decrease of £33,125, which is answer choice B.

The European Electronics Company Has 3 Divisions - Italian Division: If the Sales Volume Decreases by 25

The European Electronics Company Has 3 Divisions -
Italian Division: If the Sales Volume Decreases by 25