Question: CVP exercises. The Deli-Sub Shop owns and operates six stores in and around Minneapolis. You are given the following corporate budget data for next year:
Revenues $ 11,000,000
Fixed costs $ 3,000,000
Variable costs $ 7,500,000
Variable costs change based on the number of subs sold. Compute the budgeted operating income for each of the following deviations from the original budget data. (Consider each case independently.)
1. A 10% increase in contribution margin, holding revenues constant
2. A 10% decrease in contribution margin, holding revenues constant
3. A 5% increase in fixed costs
4. A 5% decrease in fixed costs
5. A 5% increase in units sold
6. A 5% decrease in units sold
7. A 10% increase in fixed costs and a 10% increase in units sold
8. A 5% increase in fixed costs and a 5% decrease in variable costs
9. Which of these alternatives yields the highest budgeted operating income? Explain why this is the case.