Question

A company’s contribution format income statement for the most recent month is shown below:

	Total			Per Unit
Sales (35,000 units)	$	280,000		$	8.00
Variable expenses		175,000			5.00
Contribution margin		105,000		$	3.00
Fixed expenses		43,000
Net operating income	$	62,000

What is the revised net operating income if the selling price per unit increases by 10%, variable expenses increase by 10 cents per unit, and the number of units sold decreases by 14%?

Answer 1

Number of units decrease by 14%

New number of units sold = 35,000 - 35,000 x 14%

= 35,000-4,900

= 30,100 units

Selling price per unit unit increase by 10%

New selling price per unit = 8 + 8 x 10%

= 8+0.8

= $8.80

Variable expense increase by 10 cents per unit

New variable expense = 5 + 0.10

= $5.10 per unit

	Total	Per unit
Sales (30,100 units)	264,880	8.80
Variable expenses	153,510	5.10
Contribution margin	111,370	3.70
Fixed expenses	43,000
Net operating income	$68,370

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