Question

Ofarrell Corporation, a company that produces and sells a single product, has provided its contribution format income statement for March. Sales (6,800 units) $306,000; Variable expenses 149,600; Contribution margin 156,400; Fixed expenses 96,500; Net operating income $ 59,900. If the company sells 7,200 units, its net operating income should be closest to________.

Answer 1

Answer:

The net operating income should be $69,100 for 7,200 units.

Explanation:

Given,  

Sales (6800) units - $306,000

Variable expense (6800)  - 149,600

Contribution - 156,400 (Sales - Variable cost )

Less - Fixed Expense $96,500

Net operating Income - $59,900

Since, the sales and the variable expense is given for 6800 units. For computing the net operating income for 7200 units, it is important to calculate per unit price of both.  

Per unit sales = Sales ÷ Number of units

                      = $306,000 ÷ 6800 units

                      =  $45 per unit sale

Per unit variable expense = Variable expense ÷ Units

                                           = 149,600 ÷ 6800 units

                                           =  22 per unit expense.

Now, we can compute easily.  

Sales = (7200 × $45) = $324,000  

Less - Variable cost (7200 × $22) =  158,400  

Contribution - $165,600

Less - Fixed expense - $ 96500

Net operating income - $69,100

The fixed expense would remain the same.  

Thus, the net operating income should be $69,100 for 7,200 units.