Question

Jilk Inc.'s contribution margin ratio is 63% and its fixed monthly expenses are $44,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $130,000?

Answer 1

Answer:

$37,900

Explanation:

The Net/operating income is the difference between the total sales and total costs, Total cost is made up of the fixed and variable cost.

Like the total sales, the total variable cost is also affected by the level of activities or units produced/sold.

Mathematically,

Net income = Total sales - variable cost - fixed cost

Contribution margin is the difference between the sales and variable cost. This margin divided by sales gives the contribution margin ratio. Also, Contribution margin less fixed cost gives the operating income.

63% = Contribution margin/$130,000

Contribution margin = .63 * $130,000

= $81,900

Estimated net operating income = $81,900 - $44,000

= $37,900