Question

Whirly Corporation’s contribution format income statement for the most recent month is shown below: Total Per Unit Sales (7,100 units) $ 241,400 $ 34.00 Variable expenses 142,000 20.00 Contribution margin 99,400 $ 14.00 Fixed expenses 54,100 Net operating income $ 45,300 Required:

(Consider each case independently):

1. What would be the revised net operating income per month if the sales volume increases by 30 units? 2. What would be the revised net operating income per month if the sales volume decreases by 30 units? 3. What would be the revised net operating income per month if the sales volume is 6,100 units?

Answer 1

1. If Sales Volume increases by 30 units :

Contribution margin from sales of extra 30 units : 30 units * $14 = $420

There is no impact on Fixed expenses.

Hence, Revised net operating income would be : $45,300 +$420 = $45,720.

2. If Sales Volume decreases by 30 units :

Loss of contribution margin from less sales of 30 units : 30 units * $14 = $420

There is no impact on Fixed expenses.

Hence, Revised net operating income would be : $45,300 - $420 = $44,880

3. If Sales volume is 6,100 units -

Contribution : 6,100 units * $14 = $85,400

Fixed Cost : $54,100

Hence, Revised net operating income = $85,400 - $54,100 = $31,300