A company reported first quarter revenues of $10,000,000, gross profit margin of 25%, and operating income of 15%. To reduce overhead expenses, a consultant recommends that the company outsource some of its operating activities beginning with the second quarter. This recommendation is anticipated to reduce operating expenses by 20% without affecting sales volume. The company has an income tax rate of 35%. Assuming cost of sales remains at 75%, what is the impact on the income statement if the company implements the recommendation?
a. Gross profit will increase by 8.0%.
b. Operating income will increase by 8.7%.
c. Operating income will increase by $200,000.
d. Operating expenses will be reduced by $300,000.
Answer is C ( Can any one explain Please )
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Ahmed Kishka
Supervisor
Mansoura
Egypt
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