Calculate the expected percent increase in operating income

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Reference no: EM133348343

Question: Cost Behavior at Best Buy.(10 points) The following condensed income statement is for Best Buy Co., Inc., a large retailer of consumer electronics:

Best Buy Income Statement for the Year Ended January 31, 2019 (in millions)
Net sales	$	42,879
Cost of goods sold		32,918
Gross margin	$	9,961
Selling and administrative expenses		8,061
Operating income	$	1,900

Required:

Assume that cost of goods sold comprises only variable costs, and selling and administrative expenses are all fixed costs. Also assume that Best Buy expects sales to grow by 10 percent for the year ended February 2, 2020.
Calculate expected operating income for the year ended February 2, 2020, assuming the company is still within the relevant range of activity.
Calculate the expected percent increase in operating income from the year ended February 2, 2019, to the year ended February 2, 2020.
Why is the percent increase in operating income higher than the percent increase in sales?
Is the assumption that all selling and administrative expenses are fixed a reasonable assumption? Explain.

Reference no: EM133348343

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