Question

Whirly Corporation’s contribution format income statement for the most recent month is shown below: Total Per Unit Sales (7,400 units) $ 244,200 $ 33.00 Variable expenses 140,600 19.00 Contribution margin 103,600 $ 14.00 Fixed expenses 54,200 Net operating income $ 49,400 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 70 units? 2. What would be the revised net operating income per month if the sales volume decreases by 70 units? 3. What would be the revised net operating income per month if the sales volume is 6,400 units?

Answer 1

1. Net operating Income = $50,380

2. Net Operating Income = $48,420

3. Net Operating Income = $35,400

Step-by-step explanation:

As for the provided information we have,

Sales = 7,400 units = $244,200

That means selling price per unit = $244,200/7,400 = $33 per unit

Variable expenses = $19 per unit

Contribution = $14 per unit

Fixed expenses = $54,200

Net Operating Income = $49,400

Note: As the variable expense changes in total with change in number of units, and accordingly contribution changers in total but remains constant per unit, irrespective of number of units, calculations of net operating income can be made directly through contribution margin.

1. If sales increase by 70 units then,

Contribution = $14
`*` 7,470 = $104,580

Less: Fixed Expenses = ($54,200)

Net operating Income = $50,380

2. If sales decrease by 70 units then

Contribution = $14
`*` 7,330 = $102,620

Less: Fixed Expenses = ($54,200)

Net Operating Income = $48,420

3. If sales volume is 6,400 units then

Contribution = $14
`*` 6,400 = $89,600

Less: Fixed Expenses = ($54,200)

Net Operating Income = $35,400