Question

Whirly Corporation’s contribution format income statement for the most recent month is shown below:

	Total			Per Unit
Sales (7,100 units)	$	248,500		$	35.00
Variable expenses		134,900			19.00
Contribution margin		113,600		$	16.00
Fixed expenses		54,200
Net operating income	$	59,400

Required:

(Consider each case independently):

1. What would be the revised net operating income per month if the sales volume increases by 90 units?

2. What would be the revised net operating income per month if the sales volume decreases by 90 units?

3. What would be the revised net operating income per month if the sales volume is 6,100 units?

.

Karlik Enterprises distributes a single product whose selling price is $27 per unit and whose variable expense is $22 per unit. The company’s monthly fixed expense is $24,000.

2. Calculate the company’s break-even point in unit sales.

Answer 1

Answer to 1, 2 and 3

Particulars	Part 1	Part 2	Part 3
Sales Units	7,190.00	7,010.00	6,100.00
Contribution Margin	16.00	16.00	16.00
Total Contribution	115,040.00	112,160.00	97,600.00
Less: Fixed Cost	54,200.00	54,200.00	54,200.00
Operating Income	60,840.00	57,960.00	43,400.00

Break Even Point = Fixed Cost / Contribution Margin Ratio

= 24000 / 0.1852

= $129600

Working Note

Contribution Margin Ratio = (Sales Price - Variable Cost) / Sales Price

= (27 - 22) / 27

= 18.52% or 0.1852