Income Statement of Base Corporation Sales Volume Present Sales $ 100,000 Variable expenses 50,000 Contribution margin 50,000 Fixed expenses 20,000 Net Operating income $ 30,000 Knowledge Check 01 If sales increase by $50,000, what will be the net operating income for the company? $25,000

The net operating income for the company after sales increase will be $55000.

The change in net operating income as a result of sales increase will be $25000.

Explanation:

The net operating income of the company is calculated by deducting the variable and fixed expenses of operations from net sales.

The current net operating income is:

Net operating income = 100000 - 50000 - 20000 = $30000

The fixed costs are the costs that will remain fixed in the short run. Thus, they will not change even if the sales revenue changes. The variable costs vary with the level of output/sales.

The variable costs will increase as a result of increase in sale.

The variable costs are 50% of sales = VC / sales = 50000 / 100000 = 50%

The new sales level is = $100000 + 50000 = $150000

As the variable costs are 50% of sales, the new variable costs will be = 150000 * 0.5 = $75000

The fixed costs will remain fixed at $20000.

The new net operating profit will be = 150000 - 75000 - 20000 = $55000

The change in operating profit will be = new Operating profit - old operating profit = 55000 - 30000 = $25000