Blue Mountain Company manufactures a single product. In the prior year, the comp
ID: 2518130 • Letter: B
Question
Blue Mountain Company manufactures a single product. In the prior year, the company had sales of $90,000, variable costs of $50,000, and fixed costs of $30,000. Blue Mountain expects its cost structure and sales price per unit to remain the same in the current year, however total sales are expected to increase by 20 percent. If the current year projections are realized, net income should exceed the prior year’s net income by:
100 percent.
80 percent.
20 percent.
50 percent.
100 percent.
80 percent.
20 percent.
50 percent.
Explanation / Answer
Hence increase in net income=(18000-10000)/10000
=80%.
NOTE:Total fixed costs and variable cost/unit do not change with change in units.
Current Proposed Sales 90,000 (90,000*1.2)=$108000 Less:VC 50000 (50000*1.2)=$60000 Contribution margin 40000 48000 Less:Fixed costs (30000) (30000) Net income 10000 18000