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8 April, 14:44

In 2020, the Merkel Company had revenues of $2,600,000 and costs of $2,100,000. During 2021, Merkel will be introducing a new product line that is expected to increase sales revenue by $260,000 and costs by $172,000. Assuming no changes are expected for the other products, the operating profits are expected to increase by: Multiple Choice a. $588,000. b. $260,000. c. $172,000. d. $88,000.

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  1. 8 April, 15:02
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    d. $88,000

    Explanation:

    In 2020, Merkel company's

    Revenue = $2,600,000

    Cost = $2,100,000

    Operating profits = Revenue - Cost

    = $2,600,000 - $2,100,000

    = $500,000

    In 2021, the company's;

    Revenue increases by $260,000

    New revenue = $260,000 + $2,600,000 = $2,860,000

    New Cost = $2,100,000 + $172,000 = $2,272,000

    New Operating profits = $2,860,000 - $2,272,000

    = $588,000

    Expected increase in Operating profits = $588,000 - $500,000

    = $88,000

    The expected increase in operating profit amounts to $88,000.
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