Question

1. What is the revised net operating income if unit sales increase by 16%? 2. What is the revised net operating income if the selling price decreases by $1.50 per unit and the number of units sold increases by 25%? 3. What is the revised net operating income if the selling price increases by $1.50 per unit, fixed expenses increase by $6,000, and the number of units sold decreases by 6%? 4. What is the revised net operating income if the selling price per unit increases by 20%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 11%?

Answer 1

Answer:

1) NOI = $90,240

2) NOI = 29,250

3) NOI = 133,260

4) NOI = 110,190

Explanation:

The question is incomplete.

Sales (38,000 units)      $342,000     ($9.00 per unit)

Variable expenses        $228,000     ($6.00 per unit)

Contribution margin        $114,000     ($3.00 per unit)

Fixed expenses                $42,000

Net operating income      $72,000

1. What is the revised net operating income if unit sales increase by 16%

If unit sales increase, we can calculate this with a 16% increase in the contribution margin.

$NOI=CM*(1+0.16)-FE=114,000*1.16-42,000=132,240-42,000\\\\NOI=90,240$

2. What is the revised net operating income if the selling price decreases by $1.50 per unit and the number of units sold increases by 25%?

A reduction of $1.50 in price means a reduction of the same amount in the contribution margin per unit (CMu), as the variable expenses stay the same .

Also, the contribution margin increases by 25%, for the increase in units sold (q).

$NOI=CM_u*q-FE=(3.00-1.50)*(38,000*1.25)-42,000\\\\NOI=1.5*47,500-42,000=71,250-42,000\\\\NOI=29,250$

3. What is the revised net operating income if the selling price increases by $1.50 per unit, fixed expenses increase by $6,000, and the number of units sold decreases by 6%?

The selliing price will be added to the contribution margin per unit.

The units sold are increased 6%.

$NOI=CMu*q-FE=(3.00+1.50)*38,000*1.06-(42,000+6,000)\\\\NOI=4.5*40,280-48,000=181,260-48,000\\\\NOI=133,260$

4. What is the revised net operating income if the selling price per unit increases by 20%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 11%?

The contribution margin per unit, with a increase in price and an increase in variable cost, becomes:

$CM_u=P-VE_u=9.00*(1.20)-(6.00+0.30)=10.80-6.30=4.50$

The units sold is now:

$q'=(1-0.11)q=0.89q=0.89*38,000=33,820$

Then, the net operating income becomes:

$NOI=CM_u*q-FE=4.5*33,820-42,000=152,190-42,000\\\\NOI=110,190$