A. See correct answer.

B. The first step is to find the current sales volume using the facts given about the current situation. Letting X stand for sales volume, Total Revenue is 10X. Total Variable Cost is 6X. And since Profit is 10% of Total Revenue, and Total Revenue is 10X, Profit is .10(10X), which is equal to X. Therefore, our equation is:

10X - 6X - 12,000 = X

Solving for X:

4X - 12,000 = X

3X - 12,000 = 0

3X = 12,000

X = 4,000

We can prove this answer with a short income statement:

  Revenue: $10 × 4,000         $40,000

  Variable Cost: $6 × 4,000      24,000

  Contribution margin            $16,000

  Fixed cost                      12,000

  Profit                           $  4,000 which is 10% of total revenue of $40,000

Now that we know the current sales volume is 4,000 units, we can calculate the increased sales volume when it increases by 25%: 4,000 × 1.25 = 5,000 units.

Now, we can create another income statement using a volume of 5,000 units and a sales price of $9, to answer the question:

  Revenue: $9 × 5,000          $45,000

  Variable Cost: $6 × 5,000      30,000

  Contribution margin           $15,000

  Fixed cost                       12,000

  Profit                           $  3,000 

C. See correct answer.

D. See correct answer.