49. Cost Behavior at Best Buy. The following condensed income statement is for Best Buy Co., Inc., a large retailer of consumer electronics. Required: Assume that cost of goods sold comprises only variable costs, and selling and administrative expenses are all fixed costs. Also assume that Best Buy expects sales to grow by 10 percent for the year ended January 31, 2016. a. Calculate expected operating income for the year ended January 31, 2016 assuming the company is still within the relevant range of activity. b. Calculate the expected percent increase in operating income from the year ended January 31, 2015, to the year ended January 31, 2016. c. Why is the percent increase in operating income higher than the percent increase in sales? d. Is the assumption that all selling and administrative expenses are fixed a reasonable assumption? Explain.

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Best Buy Income Statement for the Year Ended January 31, 2015 (in millions) Net sales $40,339 Cost of goods sold Gross margin Selling and administrative expenses Operating income 31,292 $9,047 7,597 $ 1,450 Required: Assume that cost of goods sold comprises only variable costs, and selling and administrative expenses are all fixed costs. Also assume that Best Buy expects sales to grow by 10 percent for the year ended January 31, 2016. a. Calculate expected operating income for the year ended January 31, 2016 assuming the company is still within the relevant range of activity. b. Calculate the expected percent increase in operating income from the year ended January 31, 2015, to the year ended January 31, 2016. c. Why is the percent increase in operating income higher than the percent increase in sales? d. Is the assumption that all selling and administrative expenses are fixed a reasonable assumption? Explain. Best Buy Income Statement for the Year Ended January 31, 2015 (in millions) Net sales $40,339 Cost of goods sold Gross margin Selling and administrative expenses Operating income 31,292 $9,047 7,597 $ 1,450 Required: Assume that cost of goods sold comprises only variable costs, and selling and administrative expenses are all fixed costs. Also assume that Best Buy expects sales to grow by 10 percent for the year ended January 31, 2016. a. Calculate expected operating income for the year ended January 31, 2016 assuming the company is still within the relevant range of activity. b. Calculate the expected percent increase in operating income from the year ended January 31, 2015, to the year ended January 31, 2016. c. Why is the percent increase in operating income higher than the percent increase in sales? d. Is the assumption that all selling and administrative expenses are fixed a reasonable assumption? Explain.

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