Pool Company's variable expenses are 36% of sales.Pool is contemplating an advertising campaign that will cost $20,000.If sales increase by $80,000,the company's net operating income should increase by:
A)$28,800
B)$64,000
C)$8,800
D)$31,200

Question

Quizplus · Accepted Answer

CM ratio = 1 - Variable expense ratio
= 1 - 0.36
= 0.64
Increase in net operating income = CM ratio F1F1F1S1F1F1F10 Increase in sales - Increase in fixed expenses
= (0.64 F1F1F1S1F1F1F10 $80,000)- $20,000= $51,200 - $20,000 = $31,200

Pool Company's Variable Expenses Are 36% of Sales