Question

The following information pertains to Nova Co.'s cost-volume-profit relationships: Breakeven point in units sold ...................... 1,000 Variable expenses per unit .......................... $500 Total fixed expenses .................................... $150,000 How much will be contributed to net operating income by the 1,001st unit sold? A) $650 B) $500 C) $150 D) $0

Answer 1

A) $650

Step-by-step explanation:

The breakeven point is reached when the revenue is equal to total costs (fixed costs + variable costs), where gross margin is equal to fixed cost. Therefore, if the breakeven point is reached when the company sells 1,000 units, the gross margin is $150,000, and the contribution per unit is $150. The operating income is before gross margin, and going backwards could be understood as Operating income = variable cost + gross margin. In this case variable cost = 500 so the operating income is 500 + 150 = 650