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24 September, 17:53

During March, Adams Company had sales of $5,000,000, variable expenses of $3,000,000, and fixed expenses of $1,500,000. Assume that cost behavior and unit selling price remain unchanged during April. In order for the company to realize net operating income of $300,000 for April, sales would have to be: Ans: a. $3,750,000. b. $4,050,000. c. $4,500,000. d. $4,800,000.

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  1. 24 September, 18:00
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    Option (c) is correct.

    Explanation:

    Variable cost as a percent of sales:

    = (Variable expenses : Sales) * 100

    = ($3,000,000 : $5,000,000) * 100

    = 60%

    If Sales = X

    then Variable cost is 0.6X (i. e. 60% of Sales)

    Sales - Variable cost - fixed expenses = net operating income

    X - 0.6X - 1,500,000 = 300,000

    0.4X = 300000 + 1500000 = 1800000

    X = 1800000 : 0.4

    = 4,500,000
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