Question

Nocum Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (3,000 units) $ 120,000 Variable expenses 90,000 Contribution margin 30,000 Fixed expenses 21,000 Net operating income $ 9,000 If sales decline to 2,900 units, the net operating income would be closest to___________.

Answer 1

Answer:

$8000

Explanation:

sing the contribution margin analysis, net income is equal to the total contribution minus fixed cost.

i.e., net income = total contribution margin- fixed cost

9000= 30,000-21000

(3,000 units) $ 120,000

Variable expenses 90,000

Contribution margin 30,000

Fixed expenses 21,000

Net operating income $ 9,000

If sales decline to 2,900 units,

new sales revenue :

sales per unit

=$120,000/3000

=$40

New sales revenue = $40 x 2,900

=$116,000

variable expenses for 3000 unit = 90,000

variable expense per unit = 90000/3000= 30

variable cost for 2900 units = $87,000

Total contribution margin = selling price - variable expenses

=$116,000 - &87,000

new contribution margin =$29,000

New net operation income = new contribution margin - fixed costs

=$29,000- $21000

=$8000