s contribution format income statement for the most recent month is shown below

Question

s contribution format income statement for the most recent month is shown below Total Per Unit 350,000 35.00 Sales (10,000 units) Variable expenses Contribution margin Fixed expenses Net operating income 200000 20.00 150,000 $15.00 135,000- 15,000 Book Hint Required: (Consider each case independently): Print 1. What would be the revised rhet operating income per month if the sales volume increases by 100 units? 2. What would be the revised net operating income per month if the sales volume decreases by 100 units? 3. What would be the revised net operating income per month if the sales volume is 9,000 units? rences 1. Revised net operating income 2. Revised net operating income 3. Revised net operating income

Explanation / Answer

Answer 1 1 Revised net operating Income = $      16,500 2 Revised net operating Income = $      13,500 3 Revised net operating Income = 0 Workings: Selling price per unit = $               35 Variable cost per unit = $               20 Fixed cost = $   1,35,000 Current Sales volume =           10,000 units 1 If Sales volume increases by 100 units: New Sales volume = 10,000 units + 100 units =           10,100 units Sales (10,100 units X $35) = $   3,53,500 Less: Variable cost (10,100 units X $20) = $   2,02,000 Contribution margin = $   1,51,500 Less: Fixed cost = $   1,35,000 Net Operating Income = $      16,500 2 If Sales volume decreases by 100 units: New Sales volume = 10,000 units - 100 units =             9,900 units Sales (9,900 units X $35) = $   3,46,500 Less: Variable cost (9,900 units X $20) = $   1,98,000 Contribution margin = $   1,48,500 Less: Fixed cost = $   1,35,000 Net Operating Income = $      13,500 3 If Sales volume is 9,000 units: New Sales volume =             9,000 units Sales (9,000 units X $35) = $   3,15,000 Less: Variable cost (9,000 units X $20) = $   1,80,000 Contribution margin = $   1,35,000 Less: Fixed cost = $   1,35,000 Net Operating Income = 0 Answer 2 1 Contribution margin ratio = 40% 2 Change in Net operating Income = $ 400 Workings: Sales = $   2,00,000 Less: Variable cost = $   1,20,000 Contribution margin = $      80,000 Less: Fixed cost = $      65,000 Net Operating Income = $      15,000 1 Contribution margin ratio = Contribution margin / sales = $80,000 / $2,00,000 = 40% 2 If Sales increases by $1,000 : Sales ($2,00,000 + $1,000) = $   2,01,000 Less: Variable cost* = $   1,20,600 Contribution margin = $      80,400 Less: Fixed cost = $      65,000 Net Operating Income = $      15,400 Change in Net operating Income = $15,400 - $15,000 $            400 *Variable cost = Sales X (100% - Contribution margin ratio) = $2,01,000 X (100% - 40%) = $   1,20,600 Alternatively, Change can be directly computed as = Change in sales X Contribution margin ratio ($1,000 X 40% = $400).

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