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.
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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