Variable Costs as a Percentage of Sales for Lemon Inc

question 125

Multiple Choice

Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. How much will operating income change if sales increase by $40,000?

• A) $8,000 increase
• B) $8,000 decrease
• C) $30,000 decrease
• D) $30,000 increase

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Definitions:

Relevance

A characteristic of financial information that is capable of making a difference in the decisions made by users by being timely and pertinent to their needs.

Accounting Information

Data related to the financial position and performance of an entity that is useful to users in making economic decisions.

Timeliness

The quality of being done at the appropriate or advantageous time, particularly in the context of information being available when it is needed.

Verifiability

An accounting principle that ensures all information reported is backed by evidence and can be confirmed by independent observers.