Question

Whirly Corporation’s contribution format income statement for the most recent month is shown below: Total Per Unit Sales (7,000 units) $ 231,000 $ 33.00 Variable expenses 133,000 19.00 Contribution margin 98,000 $ 14.00 Fixed expenses 54,400 Net operating income $ 43,600 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 40 units? 2. What would be the revised net operating income per month if the sales volume decreases by 40

Answer 1

1. $44,160

2. $43,040

Step-by-step explanation:

The formula to compute the net operating income is

= Total sales - variable cost - fixed expenses

where,

Contribution margin = Total sales - variable cost

1. Increased sales = Increased units × selling price per unit

= $7,040 units × $33 per unit

= $232,320

Variable cost = Increased units × variable cost per unit

= $7,040 units × $19 per unit

= $133,760

Fixed expenses = $54,400

Now operating income = $232,320 - $133,760 - $54,400

= $44,160

2. Decreased sales = Decreased units × selling price per unit

= $6,960 units × $33 per unit

= $229,680

Variable cost = Decreased units × variable cost per unit

= $6,960 units × $19 per unit

= $132,240

Fixed expenses = $54,400

Now operating income = $229,680 - $132,240 - $54,400

= $43,040