Question

"Jilk Inc.'s contribution margin ratio is 60% and its fixed monthly expenses are $51,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $144,000?

Answer 1

Net operating income $35,400

Step-by-step explanation:

We know, the contribution margin income statement is different from the financial income statement. The following income statement shows the contribution margin method.

Jilk Inc.

Contribution margin format income statement.

Sales $144,000

Less: variable expense $57,600 (Note 1)

Contribution margin $86,400 (Note 2)

Less: fixed expense $51,000

Net operating income $35,400

Note 1: variable expense = Sales revenue - Contribution margin

variable expense = $144,000 - $86,400

variable expense = 57,600

Note 2: contribution margin = Sales revenue × Contribution margin ratio

Contribution margin = $144,000 × 60%

Contribution margin = $86,400.