Cost Accounting (15th Edition)

Published by Prentice Hall
ISBN 10: 0133428702
ISBN 13: 978-0-13342-870-4

Chapter 3 - Cost-Volume-Profit Relationships - Assignment Material - Exercises - Page 94: 3-19(9)

Answer

Alternative # 001 yields the highest budgeted operating income worked out as follows;

Work Step by Step

Highest increase in alternative # 001 is due to the fact that fixed costs remained unchanged whereas the contribution margin rose by 11%. This is consistent with the assumptions of CVP analysis i.e., higher the contribution margin, lesser will be the units required to be sold to cover fixed costs and generate profits.
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