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 unit contribution margin is increased by 10%, the total fixed expense is decreased by 20%, 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 unit contribution margin is increased by 10%, the total fixed expense is decreased by 20%, and all other data remain as in the budget, net operating income will be:

Quizplus · Accepted Answer

To calculate the new net operating income for the Italian Division, we can use the following formula:

New Net Operating Income = (New Unit Contribution Margin x New Sales Volume) - New Fixed Expenses

Since the sales volume is not given, we can assume it remains the same as in the budget. Therefore, we only need to calculate the new unit contribution margin and fixed expenses:

New Unit Contribution Margin = Unit Contribution Margin x 1.1 = £12.10

New Fixed Expenses = Fixed Expenses x 0.8 = £69,000

Now we can calculate the new net operating income:

New Net Operating Income = (£12.10 x 7,500) - £69,000 = £91,750

Therefore, the answer is D.

The European Electronics Company Has 3 Divisions - Italian Division: If the Unit Contribution Margin Is Increased

The European Electronics Company Has 3 Divisions -
Italian Division: If the Unit Contribution Margin Is Increased