Question

Rovinsky Corporation, a company that produces and sells a single product, has provided its contribution format income statement for November.
Sales (5,700 units) $ 319,200
Variable expenses 188,100
Contribution margin 131,100
Fixed expenses 106,500
Net operating income $ 24,600
If the company sells 5,300 units, its net operating income should be closest to:

a. $24,600
b. $2,200
c. $22,874
d. $15,400

Answer 1

Answer:

d. $15,400

Explanation:

Given the format, the cost elements are fixed and variable. Of all the items listed, only the fixed expense will not be affected when the activity level changes from 5700 units to 5300 units.

As such,

Sales (5,300 units) = 5300/5700 × $319,200 = $296,800

Variable expenses (5,300 units)  = 5300/5700 × $188,100 = $174,900

As such, If the company sells 5,300 units

                                      Amount in $

Sales                                 296,800

Variable expenses           (174,900)

Contribution margin         121,900

Fixed expenses                (106,500)

Net operating income        15,400