Question

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

	Total	Per Unit
Sales (8,100 units)	$ 251,100	$ 31.00
Variable expenses	162,000	20.00
Contribution margin	89,100	$ 11.00
Fixed expenses	54,600
Net operating income	$ 34,500

 

Required: (Consider each case independently):

 1. What would be the revised net operating income per month if the sales volume increases by 50 units?

 2. What would be the revised net operating income per month if the sales volume decreases by 50 units?

 3. What would be the revised net operating income per month if the sales volume is 7,100 units?

Answer 1

1. If Sales Volume is increases by 50 units :

Contribution margin from sales of extra 50 units : 50 units * $ 11 = $ 550

No Impact on Fixed Cost.

Hence, Revised net operating income would be : $ 34,500 +$ 550 = $ 35,050

2. If Sales Volume is decreases by 50 units :

Loss of contribution margin from less sales of 50 units : 50 units * $ 11 = $ 550

No Impact on Fixed Cost.

Hence, Revised net operating income would be : $ 34,500 - $ 550 = $ 33,950.

3. If Sales volume is 7,100 units -

Contribution : 7,100 units * $ 11 = $ 78,100

Fixed Cost : $ 54,600

  Revised net operating income = $ 78,100 - $ 54,600 = $ 23,500