Question

Acme company has variable cost equal to 30% of sales. the company is considering a proposal that will increase sales by $10,000 and total fixed cost by $7000. by what amount will net income increase?

Answer 1

let us assume sales before increase  is $10000 and FC = $5000

sales               $20000(10000+10000)
-VC 30%             $6000(20,000*30%) 
contribution       $14000(20000-6000)
-FC                      $12000(5000+7000)
profit                    $2000(14000-12000)

so net income increase by $2000