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

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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