Exercise 5-1 The Effect of Changes in Activity on Net Operating Income [LO5-1] W

Question

Exercise 5-1 The Effect of Changes in Activity on Net Operating Income [LO5-1]

Whirly Corporation’s contribution format income statement for the most recent month is shown below:

Required:

(Consider each case independently):

1. What would be the revised net operating income per month if the sales volume increases by 30 units?

2. What would be the revised net operating income per month if the sales volume decreases by 30 units?

3. What would be the revised net operating income per month if the sales volume is 7,400 units?

Total Per Unit Sales (8,400 units) $ 252,000 $ 30.00 Variable expenses 159,600 19.00 Contribution margin 92,400 $ 11.00 Fixed expenses 54,700 Net operating income $ 37,700

Explanation / Answer

Case 1 Case 2 Case 3 Units sold (8400+30)=8430 units (8400-30)=8370 units 7400 units Sales (30*8430)=$252900 (30*8370)=$251100 (30*7400)=$222000 Variable expense (19*8430)=$160170 (19*8370)=$159030 (19*7400)=$140600 Contribution margin $92730 $92070 $81400 Fixed expenses 54700 54700 54700 Net operating income $38030 $37370 $26700.

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