Question

Souza Inc, which produces and sells a single product, has provided its contribution format income statement for October.

Sales (4,000 units) $88,000
Variable expenses 40,000
Contribution margin 48,000
Fixed expenses 41,700
Net operating income $6,300

If the company sells 3,500 units, its net operating income should be closest to:_______

a. $5,513
b. -$4,700
c. $6,300
d. $300

Answer 1

d. $300

Step-by-step explanation:

Calculation for what its net operating income should be closest to

Using this formula

First step is to calculate the contribution margin per unit using this formula

Contribution margin per unit= Contribution margin ÷ Number of units

Let plug in the formula

Contribution margin per unit= $48,000 ÷ 4,000 units

Contribution margin per unit= $12

Second step is to calculate the contribution margin

Contribution margin = 3,500 units × $12

Contribution margin = $42,000

Now let calculate the net operating income using this formula

Net operating income = Sales - Variable cost - Fixed expenses

Let plug in the formula

Net operating income= $42,000 - $41,700

Net operating income= $300

Therefore its net operating income should be closest to $300