Question

Souza Inc, which produces and sells a single product, has provided its contribution format income statement for October. Sales (4,000 units) $ 88,000 Variable expenses 40,000 Contribution margin 48,000 Fixed expenses 41,700 Net operating income $ 6,300 If the company sells 3,500 units, its net operating income should be closest to

Answer 1

Answer:

Net operating income is $300

Explanation:

We know that,

The net operating income = Sales - variable cost - fixed expenses

And, the contribution margin = Sales - variable cost

So, contribution margin - fixed expenses = Net operating income

Since we have to compute the net operating income for 3,500 units So, first we have to compute the contribution margin per unit which is shown below:

= Contribution margin ÷ number of units

= $48,000 ÷ 4,000 units

= $12

Now for 3,500 units, the contribution margin would be

= 3,500 units × $12

= $42,000

So, the net operating income would be

= $42,000 - $41,700

= $300

The fixed expenses would not be changes. It remains constant