Moylan Roofing Company has provided the following information

Question

Sales revenue $779,000
Variable costs 506,000
Fixed costs 216,000

Which of the following statements is true, if the sales volume increases by 10%?
A) Operating income will increase by $50,600.
B) Operating income will increase by $27,300.
C) Fixed expenses will increase by $21,600.
D) Contribution margin will increase by $77,900.

Answer 1

B .B) Contribution margin = $779,000 - $506,000 = $273,000

Revised sales:
Sales Revenue $779,000
Add: 10% of sales 77,900
Total sales $856,900

Revised variable costs:
Variable costs $506,000
Add: 10% of variable costs 50,600
Total variable costs $556,600

Revised contribution margin:
Sales Revenue $856,900
Less variable costs (556,600 )
Contribution margin $300,300

Effect on contribution margin:
Revised contribution margin $300,300
Less: Variable costs (273,000 )
Increase in contribution margin $27,300