Chapter 5 Discussion Topic

Chapter 5 Discussion Topic - $300,000 60 $100,000 20...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
I think that if all of the factors remain the same, Baker Company will realize the most rapid increase in net operating income. Because the company has higher fixed costs, the contribution margin ratio will be higher, causing profits to increase at a higher rate when there is also a sales increase. For example: Year 1 Income statement: Able Co. Baker Co. Amount % Amount % Sales $500,000 100 $500,000 100 Variable expenses
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: $300,000 60 $100,000 20 Contribution margin $200,000 40% $400,000 80% Fixed expenses $150,000 $350,000 Net Operating Income $50,000 $50,000 Year 2 Income statement: Able Co. Baker Co. Amount % Amount % Sales $600,000 100 $600,000 100 Variable expenses $360,000 60 $120,000 20 Contribution margin $240,000 40% $480,000 80% Fixed expenses $150,000 $350,000 Net Operating Income $90,000 $130,000...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern