Question

Maack Corporation's contribution margin ratio is 18% and its fixed monthly expenses are $52,000. If the company's sales for a month are $315,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change.a. $206,300b. $4,700c. $263,000d. $56,700

Answer 1

Answer:

The company's net operating income is b. $4,700

Explanation:

The contribution margin ratio is calculated by using following formula:

Contribution margin ratio = (Sales - Total Variable cost)/Sales

Total Variable cost = Sales x (1 - Contribution margin ratio)

Maack Corporation's contribution margin ratio is 18% and the company's sales for a month are $315,000.

Total Variable cost = $315,000 x (1 - 18%) = $258,300

The company's net operating income = Sales - Total Variable cost - Fixed expenses = $315,000 - $258,300 - $52,000 = $4,700