c) After completing Exercise 3, what is the correct total for the increase in Operating Income resulting from a 1000 unit increase in sales? See circle.

CONTRIBUTION MARGIN: Calculated by subtracting variable costs from Sales. This is the amount that the company has available to cover its fixed costs EXERCISE3: For the most recent fiscal year, Sparrow Co. reported the following information Total $570,000 $387,600 $140,000 Per Unit $28.50 $19.38 Sales Variable Costs Fixed Costs Determine the Contribution Margin and Income from Operations: Sales Variable Costs Contribution Margin Fixed Costs Net Income Next, calculate the Contribution Margin Ratio Contribution Margin / Sales Contribution Margin Ratio Determine the Unit Contribution Margin Unit Contribution Margin Sale Price per Unit Variable Cost per Unit The Contribution Margin Ratio and the Unit Contribution Margin (UCM) can be used to quickly estimate the impact on Net Income using certain assumptions Example: Calculate the increase in Operating Income that would result from a $50,000 increase in Sales. Completed example below Work Area Increase in Net Income $50,000 X 32% CM $16,000 Calculate the increase in Operating Income that would result from a 1,000 unit increase in Sales. Hint: Use the UCM from above Increase in Operating Income Work Area