A company reported first quarter revenues of $10,000,000, gross profit margin of 25%, and operatingincome of 15%.
Question:
A company reported first quarter revenues of $10,000,000, gross profit margin of 25%, and operatingincome of 15%. To reduce overhead expenses, a consultant recommends that the company outsourcesome of its operating activities beginning with the second quarter. This recommendation is anticipatedto reduce operating expenses by 20% without affecting sales volume. The company has an income taxrate of 35%. Assuming cost of sales remains at 75%, what is the impact on the income statement if the company implements the recommendation?
A. Gross profit will increase by 8.0%.
B. Operating income will increase by 8.7%.
C. Operating income will increase by $200,000.
D. Operating expenses will be reduced by $300,000.
Financial and Managerial Accounting
ISBN: 978-1285078571
12th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac