Zipee Inc.'s unit selling price is $90, unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units?

A) $125,000 decrease
B) $175,000 increase
C) $75,000 increase
D) $247,500 increase

Question

ashapurna talukder archi · Accepted Answer

Final Answer : D, Explanation :  First, calculate the contribution margin per unit:Unit selling price - Unit variable cost = $90 - $40.50 = $49.50Next, calculate the current total contribution margin:12,000 units x $49.50 = $594,000Then, calculate the current operating income:Revenue - Variable Costs - Fixed Costs = Operating Income($90 x 12,000) - ($40.50 x 12,000) - $170,000 = $238,000If sales increase by 5,000 units, the new total units sold would be 17,000.Calculate the new revenue:$90 x 17,000 = $1,530,000Calculate the new total variable costs:$40.50 x 17,000 = $688,500Calculate the new total contribution margin:$1,530,000 - $688,500 = $841,500Calculate the new operating income:Revenue - Variable Costs - Fixed Costs = Operating Income$1,530,000 - $688,500 - $170,000 = $671,500Finally, calculate the change in operating income:New operating income - Current operating income = Change in operating income$671,500 - $238,000 = $433,500Therefore, operating income would increase by $433,500 or $247,500 (rounded to the nearest thousand). The correct answer is D.

Zipee Inc.'s unit selling price is $90, unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units?

A) $125,000 decrease
B) $175,000 increase
C) $75,000 increase
D) $247,500 increase

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Learning Objectives

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Zipee Inc.'s unit selling price is $90, unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units?A) $125,000 decreaseB) $175,000 increaseC) $75,000 increaseD) $247,500 increase

Definitions

Learning Objectives

Learning Objectives

Related questions

Zipee Inc.'s unit selling price is $90, unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units?

A) $125,000 decrease
B) $175,000 increase
C) $75,000 increase
D) $247,500 increase