Question

Whirly Corporation’s contribution format income statement for the most recent month is shown below: Total Per Unit Sales (7,800 units) $ 273,000 $ 35.00 Variable expenses 140,400 18.00 Contribution margin 132,600 $ 17.00 Fixed expenses 55,700 Net operating income $ 76,900 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 40 units? 2. What would be the revised net operating income per month if the sales volume decreases by 40 units? 3. What would be the revised net operating income per month if the sales volume is 6,800 units?

Answer 1

Answer:

1.- The operating income would increase for $680

2.- The operating income would decrease for $680

3.- The Operating Income would be $59,500

Explanation:

We are going to use the contribution margin per unit

This way we avoid most of the calculations

1.- Contribution Margin x ΔUnits = ΔOperating Income

CM per units 17 x 40 = 680

2.- Contribution Margin x ∨Units = ∨perating Income

CM per unit x (-40) = -680

3.- Contribution Margin x Sales Volume - Fixed Cost = Operating Income

17 x 6,800 - 55,700

115.600 - 55,700 = 59,900