question archive The European Electronics Company has 3 divisions
The European Electronics Company has 3 divisions
Subject:AccountingPrice:2.86 Bought9
The European Electronics Company has 3 divisions. The following budgeted data is available.
GermanItalianSwedenSales2,500 units2,500 units2,500 unitsSelling price£80 per unit£85 per unit£90 per unitVariable expense£35 per unit£40 per unit£38 per unitFixed expense£37,500£40,000£50,000
Italian Division: If the unit contribution margin is increased by 10%, the total fixed expense is decreased by 20%, and all other data remain as in the budget, operating profit will be:
Multiple Choice
- £107,500
- £102,000
- £94,000
- £91,750
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Contribution margin of Italian division = Sales per unit - Variable cost per unit
= ( 85 - 40 ) = 45
Expected contribution margin = 45 + ( 45 * 10 % ) = 45 + 4.5 = 49.50
Expected Fixed cost = 40,000 - ( 40,000 * 20 % )
= 40,000 - 8,000 = 32,000
Operating profit = ( Unit * Per unit Contribution margin) - Fixed cost
= ( 2,500 * 49.50 ) - 32,000
= 91,750
So the correct answer is £91,750
