Question

1. What would be the revised net operating income per month if the sales volume increases by 100 units? 2. What would be the revised net operating income per month if the sales volume decreases by 100 units? 3. What would be the revised net operating income per month if the sales volume is 9,000 units?

Answer 1

WipeOut Ski Company has a loss of $5 when selling 5 units at $25 each. Profitability can be assessed by comparing price to the average cost per unit. Here, the marginal unit does not contribute to profits and is contributing to losses.

Step-by-step explanation:

Profit or Loss Calculation: To determine if the WipeOut Ski Company is experiencing a profit or loss by selling 5 units at $25 each, we multiply the quantity (5 units) by the price ($25) to get the total revenue ($125). Comparing this to the total cost of producing these units ($130), we can see that the company is at a loss of $5.

Average Cost and Profitability: To quickly gauge profitability at a glance, one can compare the price of $25 to the average cost per unit. If the average cost per unit is less than $25, the company is making money on each unit sold. Conversely, if it is higher, the company is losing money.

Marginal Unit Contribution: The marginal unit is adding to profits if its sale contributes more to the revenue than the additional cost incurred to produce it. Since total costs exceed total revenue in this scenario, each additional unit sold at $25 is not added to profits. In fact, it is contributing to losses.

Answer 2

A. $16,500

B.$13,500

C. $0

Step-by-step explanation:

A. Calculation for the revised net operating income per month if the sales volume increases by 100 units

Sales $353,500

[(10,000units+100 units) × $35.00]

Less Variable expenses 202,000

[(10,000units+100 units) × $20.00]

Contribution margin 151,500

[(10,000units+100 units) × $15.00]

Fixed expenses 135,000

Net operating income$16,500

(151,500-135,000)

Therefore the revised net operating income per month if the sales volume increases by 100 units will be $16,500

2. Calculation for the revised net operating income per month if the sales volume decreases by 100 units

Sales $346,500

(10,000units-100 units) × $35.00]

Less Variable expenses 198,000

10,000units-100 units) × $20.00]

Contribution margin 148,500

10,000units-100 units) × $15.00]

Fixed expenses 135,000

Net operating income$13,500

(148,000-135,000)

Therefore the revised net operating income per month if the sales volume decrease by 100 units will be $13,500

3., Calculation for the revised net operating income per month if the sales volume is 9,000 units?

Sales $315,000

(9,000units × $35.00]

Less Variable expenses 180,000

(9,000units × $20.00]

Contribution margin 135,000

(9,000units × $15.00]

Fixed expenses135,000

Net operating income$0

(135,000-135,000)

Therefore the revised net operating income per month if the sales volume is 9,000 units will be $0