Question

  Bois Corporation has provided its contribution format income statement for January. Sales $ 426,400 Variable expenses 260,000 Contribution margin 166,400 Fixed expenses 120,900 Net operating income $ 45,500 If the company's sales increase by 7%, its net operating income should increase by about:

Multiple Choice 11%, 7%, 26% ,66%

Answer 1

The correct answer is 26%

Note :

1. Variable Expenses Ratio = Variable Expense / Sales *100

= $ 260,000 / $ 426,400 *100

= 60.97560976%

2. Revised Sales = $ 426,400 * 107%

= $ 456,248

Revised Variable Expense, when sales increases by 7% = $ 456,248 * 60.97560976%

= $ 278,200

3.

	Existing	Revised
Sales	426,400	456,248
Less :Variable Expenses	260,000	278,200
Contribution Margin	166,400	178,048
Less :Fixed Expenses	120,900	120,900
Net Income	45,500	57,148

4. Change in Net Operating Income = ($ 57,148 - $ 45,500) / $ 45,500 *100

= 25.60%

= 26%