Oriole Company produces flash drives for computers, which it sells for $15 each

Accounting Oct 21, 2020

Oriole Company produces flash drives for computers, which it sells for $15 each. Each flash drive costs $4 of variable costs to make. During April, 720 drives were sold. Fixed costs for April were $3 per unit for a total of $2160 for the month. How much does Oriole's operating income increase for each $1200 increase in revenue per month?

Expert Solution

Computation of the increase in operating income:-

Contribution margin ratio = (Sales price per unit - Variable cost per unit) / Sales price per unit

= ($15 - $4) / $15

= $11 / 15

= 73.33%

Increase in operating income = Increase in revenue * Contribution margin ratio

= $1,200 * 73.33%

= $880

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