en och3A updated cuny) STUDEN Midterm 1 Practh Chs i 20 2018%20Fa X Scanned R eg

ID: 2337351 • Letter: E

Question

en och3A updated cuny) STUDEN Midterm 1 Practh Chs i 20 2018%20Fa X Scanned R eg DEN ChA updated %2520FalP 62 520Mid ers/ Akua 620Zondani/ soft Microsoftedge 8wekyb3d8bbwe/TempState/Downloads/2018 Roosevelk Company mapufactures basketballs. The company has a ball that sells for $34. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $20-40 per ball, of which 60% is direct labor cost. Last year, the company sold 53,000 balls, with the following results: Sales Variable expenses Contribution Margin Fixed expenses Net operating income s 1,802,000 s 1,081,200 S 720,800 S 584,800 s 136,000 s considering a new policy of awarding sales commission to their sales force in exchange for reduced salary They decrease by $150,000. What is the impact of this change on net operating income? A. Net operating income increases by B. Net operating income decreases by C. Net operating income increases by D Net operating income decreases by E. None of the above S 30.200 s 30,200 S 23,860 S 23,860 Pierce Cosporaton is a wholesaler that sells a single product and maintams a stable cost structure Howerver, the denmand tor thesr product nuctuates according to the season Manageuent ided the followning data

Explanation / Answer

Rev. sales

$ 1,982,200

Less: Variable cost

$ 1,189,320

Less: Sales commission

$ 198,220

Contribution margin

$ 594,660

Less: Fixed cost

$ 434,800

Net operating income

$ 159,860

Increase in net operating income = $ 159,860 - $ 136,000 = $ 23,860

Hence option “C. Net operating income increases by $ 23,860” is correct answer.

Explanation:

Revised sales = Existing sales x 1.1 = $ 1,802,000 x 1.1 = $ 1,982,200

No. of units sold = Total sales/sells per unit = $ 1,982,200/$ 34 = 58,300

Total variable cost = No. of units x variable cost per unit

= 58,300 x $ 20.40 = $ 1,189,320

Sales commission = Sales x 10 % = $ 1,982,200 x 0.1 = $ 198,220

Contribution margin = $ 1,982,200 - $ 1,189,320 - $ 198,220 = $ 594,660

Revised fixed cost = $ 584,800 - $ 150,000 = $ 434,800

Net operating income = Contribution margin - Revised fixed cost

= $ 594,660 - $ 434,800 = $ 159,860