Question

Sales (7,500 units) $ 240,000 $ 32.00 Variable expenses 142,500 19.00 Contribution margin 97,500 $ 13.00 Fixed expenses 55,600 Net operating income $ 41,900 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 40 units? 2. What would be the revised net operating income per month if the sales volume decreases by 40 units? 3. What would be the revised net operating income per month if the sales volume is 6,500 units?

Answer 1

Answer:

1. $42,420

2. $41,380

3. $28,900

Explanation:

1. We have:

The new sales revenue = 32 x (7,500 +40) = $241,280

The new variable cost = 19 x (7,500 + 40) = $143,260

Fixed cost remains the same at $55,600

=> Net operating income = 241,280 - 143,260 - 55,600 = $42,420.

2. We have:    

The new sales revenue = 32 x (7,500 - 40) = $238,720

The new variable cost = 19 x (7,500 - 40) = $141,740

Fixed cost remains the same at $55,600

=> Net operating income = 238,720 -  141,740 - 55,600 = $41,380.

3. We have:

The new sales revenue = 32 x 6,500 = $208,000

The new variable cost = 19 x 6,500 = $123,500

Fixed cost remains the same at $55,600

=> Net operating income = 208,000 - 123,500 - 55,600 = $28,900.