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

-German 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.$\begin{array}{lccc}
&\text { German}&\text { Italian }&\text {Sweden }\
  \text { Sales } &\text { 2,500 units } &\text {   2,500 units} &\text {  2,500 units } \
 \text {Selling price  } &\text { £ 80 per unit } &\text {£85 per unit  } &\text { £ 90 per unit  } \
 \text { Variable expense } &\text { £ 35  per unit } &\text { £ 40 per unit } &\text { £ 38 per unit  } \
 \text {Fixed expense  } &\text {£ 37,500  } &\text {£ 40,000   } &\text {  £ 50,000 } \
\end{array}$

-German 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

First, calculate the original unit contribution margin for the German division: Selling price - Variable expense = £80 - £35 = £45. A 10% increase in this margin is £45 + (£45 * 0.10) = £49.5. The new total fixed expense after a 20% decrease is £37,500 - (£37,500 * 0.20) = £30,000. The new net operating income is calculated as: (Unit contribution margin * Units sold) - Fixed expense = (£49.5 * 2,500) - £30,000 = £123,750 - £30,000 = £93,750.

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