Effect of Sales Increase on Net Income Calculation

If sales were to increase by 400 units, what would be the effect on net income?

The increase in net income would be €400, which corresponds to option (c) - €400 Increase.

Calculation of Increase in Net Income

Step 1: Calculate the contribution margin per unit. The contribution margin per unit can be calculated by dividing the total contribution margin by the number of units sold: Contribution margin per unit = Total contribution margin / Units sold Contribution margin per unit = €100,000 / 100,000 units Contribution margin per unit = €1,000 Step 2: Determine the increase in contribution margin resulting from the increase in sales. Given that the sales increase is 400 units, we can calculate the increase in contribution margin: Increase in contribution margin = Increase in units * Contribution margin per unit Increase in contribution margin = 400 units * €1,000 per unit Increase in contribution margin = €400,000 Step 3: Calculate the increase in net income. Since the fixed costs remain the same at €50,000, we can determine the increase in net income by subtracting the increase in fixed costs from the increase in contribution margin: Increase in net income = Increase in contribution margin - Increase in fixed costs Increase in net income = €400,000 - €50,000 Increase in net income = €350,000 Therefore, if sales were to increase by 400 units, the effect on net income would be an increase of €350,000. This demonstrates how changes in sales volume can impact a company's net income significantly.
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