Spencer Company recently became aware of the large total discounts on its orders and would like to know the impact on profit. The company computed its operating profit as follows: 

Required 

(a) Suppose Spencer’s salespeople reduce their sales discounts, resulting in a 10% increase in net revenues. Assuming that the total variable and fixed costs above do not change, by what percent would operating profits increase? How does this percentage compare to the percentage increase in net sales revenue?

(b) Refer to the original information in this problem. Suppose Spencer’s salespeople increase their sales discounts, resulting in a 2% decrease in net revenues. Assuming that the total variable and fixed costs above do not change, by what percent would operating profits decrease? How does this percentage compare to the percentage increase in sales discounts? 

(c) Consider the ratio of operating profit to sales. How does this ratio relate to the percentage change in operating profit for a given percentage change in the net sales revenue?

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Net sales after discounts Variable costs..... Contribution margin Fixed costs..... Operating profit.. $200,000 80,000 $120,000 70,000 $ 50,000