Question

If the variable cost per unit increases by $1, spending on advertising increases by $1,600, and unit sales increase by 220 units, what would be the net operating income?

Answer 1

Answer:

$12,300

Explanation:

The computation of the net operating income is shown below:

Sales                           $85,400      (1,220 units × $70)

Less: Variable cost   -$48,190        (1,220 units × $39.5)

Contribution margin  $37,210

Less: Fixed expenses  -$24,910      ($23,310 + $1,600)

Net operating income $12,300

The cost per unit is

= $70,000 ÷ 1,000 units

= $70

Since the sales units is increased by 220 units, so total units increased by 1,000 units + 220 units = 1,220 units

The variable cost  per unit is

= $38,500 ÷ 1,000

= $38.5

The variable units is increased by $1 so total units increased by $38.5 + $1 = $39.5