Contribution margin income statement data for the most recent year follow Total

Question

Contribution margin income statement data for the most recent year follow Total 385 000 $196.000 $189.000 $102.000 $87.000 Dog Food 85,000 31.000 $54,000 $52,000 2.000 Cat Food Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss) 300,000 $165,000 $135,000 50,000 85.000 d costs romain unchanged and the space formerly used to produce the Dog food Sne is used to double the production of Cat food, how will operating income be affected? O A Increase $270,000 O B. Increase $135,000 O C. Decrease $81,000 O D. Increase $81,000

Explanation / Answer

Answer

Working

Cat Food

A

Sales revenue

$300000

B

Variable expense

$165000

C=A-B

Contribution margin

$135000

D=B/A

Variable expense ratio

55%

E=C/A

Contribution margin ratio

45%

Working

Cat Food

A = $300000 x 2

Sales revenue

$600000

B=A x 55%

Variable expenses

$330000

C=A x 45%

Contribution margin

$270000

D

Fixed Expenses of cat Food

$50000

E

Fixed expenses of Dog Food

$52000

F=C-D-E

Operating Income

$168000

G

Old Operating Income

$87000

H=F-G

Increase in operating income

$81,000

Working

Cat Food

A

Sales revenue

$300000

B

Variable expense

$165000

C=A-B

Contribution margin

$135000

D=B/A

Variable expense ratio

55%

E=C/A

Contribution margin ratio

45%

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