If sales were to increase by 400 units, what would be the effect on net income?
The increase in net income would be €400, which corresponds to option (c) - €400 Increase.
Calculation of Increase in Net Income
Step 1: Calculate the contribution margin per unit.
The contribution margin per unit can be calculated by dividing the total contribution margin by the number of units sold:
Contribution margin per unit = Total contribution margin / Units sold
Contribution margin per unit = €100,000 / 100,000 units
Contribution margin per unit = €1,000
Step 2: Determine the increase in contribution margin resulting from the increase in sales.
Given that the sales increase is 400 units, we can calculate the increase in contribution margin:
Increase in contribution margin = Increase in units * Contribution margin per unit
Increase in contribution margin = 400 units * €1,000 per unit
Increase in contribution margin = €400,000
Step 3: Calculate the increase in net income.
Since the fixed costs remain the same at €50,000, we can determine the increase in net income by subtracting the increase in fixed costs from the increase in contribution margin:
Increase in net income = Increase in contribution margin - Increase in fixed costs
Increase in net income = €400,000 - €50,000
Increase in net income = €350,000
Therefore, if sales were to increase by 400 units, the effect on net income would be an increase of €350,000. This demonstrates how changes in sales volume can impact a company's net income significantly.