Question

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

	Total			Per Unit
Sales (44,000 units)	$	352,000		$	8.00
Variable expenses		220,000			5.00
Contribution margin		132,000		$	3.00
Fixed expenses		49,000
Net operating income	$	83,000

What is the revised net operating income if the selling price per unit increases by 20%, variable expenses increase by 20 cents per unit, and the number of units sold decreases by 10%?

Multiple Choice

• $135,815

• $122,713

• $125,240

• $132,462

Answer 1

Answer: Correct option is c. $ 125,240

Calculation of revised operating income :

Revised net operating income = Revised contribution margin - fixed expenses

= $ 174,240 - $ 49,000

= $ 125,240

Thus, Revised net operating income is $ 125,240

Working note.

Revised contribution margin :

Revised contribution margin = Sales units * contribution margin per unit

= 39,600 * $ 4.40

= $ 174,240

number of unit sold decreases by 10%

Sales unit = 44,0000 - 10%

= 39,600 units

Contribution margin per unit = Selling price per unit - variable expenses per unit

= $ 9.60 - $ 5.20

= $ 4.40

selling price per unit increases by 20%.

Thus, Selling price per unit = $ 8.00 + 20% = $ 9.60

variable expenses increase by 20 cents per unit, (20 cent is one fifth of dollar )

Thus, Variable expenses per unit = $ 5.00 + $ 0.20 = $ 5.20