Sales price per pair of sandals $50.00 Variable expenses per pair of sandals 20.

Question

Sales price per pair of sandals $50.00
Variable expenses per pair of sandals 20.00
Contribution margin per pair of sandals $30.00

Fixed expenses per year:
Building rental $14,400
Equipment depreciation 3,600
Selling 36,000
Administrative 18,000
Total fixed expenses $72,000


Angie now has two salespersons working in the store—one full time and one part time. It will cost her an additional $11,900 per year to convert the part-time position to a full-time position. Angie believes that the change would bring in an additional $26,000 in sales each year. Use the incremental approach. (Do not prepare an income statement.)

How do I compute the increase in net income?

Explanation / Answer

Increase in net income would be 3700. This is found by taking the increase in revenue minus the increase in expense. The increase in sales is 26,000. The increase in expense is 11,900 plus the variable expenese per sandal of 10,400 (26,000*20/50). 26000 - (11900+10400) = 3700.

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