Joe's Coffee House Joe's Coffee House has the following information available for the month of July:
Refer to the Joe's Coffee House information above. All else being equal, if Joe's increases the sales price per unit by 10%, net operating income will:

Question

Joe's Coffee House Joe's Coffee House has the following information available for the month of July:
 Refer to the Joe's Coffee House information above. All else being equal, if Joe's increases the sales price per unit by 10%, net operating income will:

Quizplus · Accepted Answer

To calculate the new net operating income with a 10% increase in sales price per unit, we need to first find the contribution margin per unit:
$5 - $3.50 = $1.50

Then, we can calculate the new sales price per unit:
$5 + (10% * $5) = $5.50

Using the new sales price per unit and the original information, we can calculate the new contribution margin ratio:
($5.50 - $3.50) / $5.50 = 0.364

Next, we can calculate the new break-even point in sales dollars:
$17,500 / 0.364 = $48,077.71

Finally, we can calculate the new net operating income:
($48,077.71 * 0.364) - $17,500 = $4,982.22

The increase in net operating income is:
$4,982.22 - $4,232.22 = $750

Therefore, the best choice is B, as net operating income will increase by $750.

Joe's Coffee House Joe's Coffee House Has the Following Information