Accounting Problem... Need to know final Income?

Question

Walker Company has current sales of $600,000 and variable costs of $360,000. The company's fixed costs are equal to $200,000. The marketing manager is considering a new advertising campaign, which will increase fixed costs by $10,000. She anticipates that the campaign will cause sales to increase by 5 percent as a result.

What will be the impact of Walker's income? I know his income will increase, but I need the exact amount.

Answer 1

Variable costs are $360k when sales are $600k. That makes the VC 60% of sales. Without the change, the profit contribution is as follows:
Sales 600,000
less variable costs 360,000
Contribution margin 240,000
less fixed costs 200,000
equals 40,000

With the change,
Sales $630,000 (105% of 600k)
less VC at 60% $378,000
CM $252,000
less FC $210,000
equals $42,000

So the impact of the change is increased earnings of $2,000