Question

Bowe corporation's fixed monthly expenses are $21,000 and its contribution margin ratio is 61%. assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $74,000

Answer 1

In finance and accounting, contribution margin is the product's price subtracted with the variable costs of production. Contribution margin ratio is when the contribution margin is divided by the sales.

61% = Contribution margin/$74,000
Contribution margin = $45,140

The net income is equal to the contribution margin subtracted with the fixed costs.

Net income = $45,140 - $21,000 
Net income = $24,140