Evergreen Corporation Manufactures Circuit Boards and Is in the Process

question 90

Multiple Choice

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}\text {Sales}&&\$3,500,000\\\text {Cost of sales:}\\\text { Direct Material } & \$ 500,000 \\\text { Direct labor } & 250,000 \\\text { Variable Overhead } & 275,000 \\\text { Fixed Overhead } & 600,000&1,625,000\\\text { Gross Profit}&&\$1,875,000\\\text { Selling and General \& Admin. Exp.}\\\text { Variable}&750,000 \\\text { Fixed}&250,000&1,000,000\\\text { Operating Income }&&\$875,000\end{array}$
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For the coming year, the management of Evergreen Corporation anticipates a 5 percent decrease in sales, a 10 percent increase in all variable costs, and a $45,000 increase in fixed costs.
The operating profit for next year would be:

• A) $477,500.
• B) $492,500.
• C) $552,500.
• D) $831,250.

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Definitions:

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A sedimentary rock containing organic materials that can be processed to produce shale oil.