Question

Duve Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range.Sales (2,000 units) $ 40,000Variable expenses 24,000Contribution margin 16,000Fixed expenses 11,200Net operating income $ 4,800If the selling price increases by $4 per unit and the sales volume decreases by 200 units, the net operating income would be closest to:(A) $7,200(B) $12,800(C) $10,400(D)$11,520

Answer 1

Answer:

(C) $10,400

Explanation:

We know that,

The net income = Sales - variable cost - fixed expense

Since, the sales units are decreased by 200 units, so new sales units is 1,800 units

And, the sales per unit is increased by 4 So, the sale per unit equals to

=  Total sales ÷ number of units

= $40,000 ÷ 2,000 units

= $20

So, new sales per unit is $24

So, the new sales

= Sales units × selling price per unit

= $1,800 × $24 = $43,200

The variable cost = Sales units × variable cost per unit

where,

Variable cost per unit =   Total variable cost ÷ number of units

= $24,000 ÷ 2,000 units

= $12

So, the new variable cost equals to

= 1,800 units × $12

= $21,600

And the fixed expense would remain the same

So, the net income would be equal to

= $43,200 - $21,600 -  $11,200

= $10,400