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17 December, 11:37

Markham Company has a contribution margin ratio of 22%. The company is considering a proposal that will increase sales by $180,000.

What increase in profit can be expected assuming total fixed costs increase by $21,000?

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  1. 17 December, 11:54
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    Effect on income = $18,600 increase

    Explanation:

    Giving the following information:

    Markham Company has a contribution margin ratio of 22%.

    The company is considering a proposal that will increase sales by $180,000.

    Increase in total fixed costs = $21,000

    To calculate the effect on income, we need to determine the effect of the increase in sales and deduct the fixed costs:

    Increase on income = 180,000*0.22 = 39,600

    Increase on fixed costs = (21,000)

    Effect on income = $18,600
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