Answer:
The best estimate of the company's net operating income in a month is <u>$34,800</u>.
Explanation:
This can be calculated using the following steps:
Step 1: Calculation of contribution margin
This can be calculated using the formula for calculating the contribution margin ratio as follows:
Contribution margin ratio = Contribution margin / Sales ........... (1)
where,
Substituting the values in the question into equation (1) and solve for contribution margin, we have:
60% = Contribution margin / $138,000
Contribution margin = 60% * $138,000 = $82,800
Step 2: Estimation of the company's net operating income in a month
This can be calculated using the following formula:
Net operating income = Contribution margin - Fixed expenses ......... (2)
Substituting the $82,800 obtained in Step 1 for contribution margin and the fixed monthly expenses of $48,000 in the question into equation (2), we have:
Net operating income = $82,800 - $48,000 = $34,800
Conclusion
From Step 2 above, the best estimate of the company's net operating income in a month is therfore <u>$34,800</u>.
