Question

Bolding Inc.'s contribution margin ratio is 61% and its fixed monthly expenses are $42,000. 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 $126,000

Answer 1

Bolding Inc.'s estimated net operating income for a month with $126,000 in sales is $34,860. This is calculated by multiplying sales by the contribution margin ratio (61%) and then subtracting fixed monthly expenses of $42,000 from the resulting contribution margin.

Step-by-step explanation:

To estimate the net operating income (NOI) for Bolding Inc. in a month with $126,000 in sales, we use the contribution margin ratio provided, which is 61%. The contribution margin ratio tells us what portion of sales is left after variable expenses are covered, which can then be used to cover fixed expenses and contribute to profit.

To calculate the contribution margin in dollars, we multiply the sales by the contribution margin ratio:

Sales = $126,000

Contribution Margin Ratio = 61%

Contribution Margin = Sales × Contribution Margin Ratio = $126,000 × 0.61 = $76,860

Next, we subtract the fixed monthly expenses from the contribution margin to estimate the net operating income:

Fixed Expenses = $42,000

Net Operating Income = Contribution Margin - Fixed Expenses = $76,860 - $42,000 = $34,860

Therefore, Bolding Inc.'s estimated net operating income for the month is $34,860.

Answer 2

The correct answer is $34,860.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Sales = $126,000

Fixed monthly expense = $42,000

Contribution margin ratio = 61%

So, contribution margin amount = $126,000 × 61%

= $76,860

So, we can calculate the net operating income by using following formula:

Net operating income = contribution margin amount - Fixed monthly expense

= $76,860 - $42,000

= $34,860