Question

Gayne Corporation's contribution margin ratio is 16% and its fixed monthly expenses are $45,500. If the...

Gayne Corporation's contribution margin ratio is 16% and its fixed monthly expenses are $45,500. If the company's sales for a month are $302,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change.

Multiple Choice

  • $2,820

  • $256,500

  • $208,180

  • $48,320

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Answer #1

Contribution margin formula = Contribution/ Sales *100

Given Contribution margin is 16%

So Contribution will be (Sales * 16%)

It will be $302000 * 16% = $48320

Formula for contribution is Contribution = Sales - Variable cost

So Variable Cost = Sales - Contribution

It will be $302000 - $48320 =$253680

The formula for Net operating income is Sales - Variable cost - Fixed Cost

So Net operating income will be $302000 - $253680 -$45500 = $2820

So best estimate of Net operating income is $ 2820

So the first option is correct.

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