Answer (B) is correct . Silverstone’s prior year operating income is calculated as follows: ? Sales revenue $450,000 Less:? variable costs (270,000) Contribution margin $180,000 Less:? fixed costs (120,000) Operating income $??60,000 Silverstone’s contribution margin ratio is therefore 40% ($180,000 ÷ $450,000), meaning that of every additional dollar of sales, 40% is contribution margin. Thus, this year’s projected increase of $50,000 in sales will result in a $20,000 increase in contribution margin ($50,000 × 40%). Total contribution margin will be $200,000 ($180,000 + $20,000), and since fixed costs are unchanged, total profits will be $80,000 ($60,000 + $20,000).
Answer (A) is incorrect because The prior year profit is $60,000.
Answer (C) is incorrect because The amount of $110,000 results from failing to maintain the contribution margin.
Answer (D) is incorrect because This year’s estimated contribution margin is $200,000.
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