Question

Decaprio Inc. produces and sells a single product. The company has provided its contribution format income statement for June. Sales (6,100 units) $ 366,000 Variable expenses 244,000 Contribution margin 122,000 Fixed expenses 87,700 Net operating income $ 34,300 If the company sells 6,300 units, its net operating income should be closest to:

Answer 1

Variable cost per unit = 244,000 / 6,100 = $40

Selling price = 366,000 / 6,100 = $60

Contribution margin per unit = selling price - variable cost

= 60 - 40 = $20

Fixed cost is $87,700 is doesn't change with increase or decrease in production. Fixed cost $87,700 remain the same at 6,100 units level and 6,300 unit level.

Total contribution margin from 6,300 units

= 6,300 × 20 = $126,000

6,300 units operating income

= contribution margin in total - fixed cost

Operating income from 6,300 units

= 126,000 - 87,700 = $38,300

Net operating income from 6,300 units level is $38,300 of Decaprio Inc. Fixed cost remains $87,700 at 6,300 units level.