Question

Salt Corporation's contribution margin ratio is 75% and its fixed monthly expenses are $55,000. Assume that the company's sales for May are expected to be $114,000. Required: Estimate the company's net operating income for May, assuming that the fixed monthly expenses do not change.

Answer 1

Answer:

The company's net operating income for May is $30,500

Explanation:

For computing the net operating income, first, we have to compute the contribution by applying the contribution margin formula. The formula is shown below:

Contribution margin = (Contribution ÷ Sales)

75% = (Contribution ÷ $114,000)

So contribution would be equal to

=  $114,000 × 75%

= $85,500

And the fixed expenses are $55,000

So, the net operating income equal to

= Contribution - fixed expenses

= $85,500 - $55,000

= $30,500