Presented is Ace Company’s Contribution Income Statement: ACE COMPANY Contributi
ID: 2538041 • Letter: P
Question
Presented is Ace Company’s Contribution Income Statement:
ACE COMPANY
Contribution Income Statement
For the Month Ending January 31, 2017
Sales
$200,000
Less variable costs:
Direct materials
$50,000
Direct labor
20,000
Variable factory overhead
60,000
Variable S&A expenses
12,000
(142,000
)
Contribution margin
$ 58,000
Less fixed costs:
Factory overhead
$13,000
Fixed S&A expenses
12,000
(25,000
)
Net income
$ 33,000
Based on the contribution margin above, if ACE Company had $100,000 increase in sales, profit would increase by:
Select one:
A. $35,000
B. $29,000
C. $39,000
D. $28,000
ACE COMPANY
Contribution Income Statement
For the Month Ending January 31, 2017
Explanation / Answer
Contribution margin ratio = contributions/sales * 100
= 58000/200000 * 100
= 29 %
Profit increase = increase sales * contributions margin ratio
= 100000 * 29 % = 29000
Option B is correct
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