Question

Whirly Corporation's contribution format income statement for the most recent month is shown below: Sales (8,700 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $287,100 156,600 130,500 54,400 $ 76,100 Per Unit $33.00 18.00 $15.00 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 90 units? 2. What would be the revised net operating income per month if the sales volume decreases by 90 units? 3. What would be the revised net operating income per month if the sales volume is 7,700 units? 1. Revised net operating income 2. Revised net operating income 3. Revised net operating income

Answer 1

D Proposal - 2 Proposal - 1 Amount Increase by 90 units Decrease by 90 units Proposal - 3 Present 1 Per Units 3 Sales Units 8,700 8,790 8,610 7,700 33 $287,100 | $ 4 Sales Dollars 284,130 $ 254,100 154,980 $ 138,600 129,150 $ 115,500 $ 54,400 290,070 $ 5 Less: Variable Expenses $ 6 Contribution Margin 7 Less: Fixed Expenses 8 Net Operating Income 158,220 | $ 131,850 | $ 54,400 $ 18 $156,600 $ 15 $130,500 $ $ 54,400 $ $ 76,100 $ 54,400 74,750 $ 61,100 77,450 $

K N Required - 1 Sure Shot Required - 3 Increase sales by $52,000 100% $1,052,000 30% $ 302,500 70% $ 749,500 $ 576,000 1 Flight Dynamic Amount Total Company Amount 100% $1,000,000 25% $ 302,500 75% $ 697,500 $ 576,000 $ 121,500 2 Amount 3 100% $250,000 32% $ 62,500 68% $187,500 4 Sales $750,000 5 Less: Vari $240,000 6 Contributi $510,000 7 Less: Fixed Expenses 8 Net Operating Expenses $ 173,500 9. Required - 2 =Fixed Cost / Contribution Margin Ratio =$576,000 / 70% 10 11 Break even point in dollar sales 12 Break even point in dollar sales 13 Break even point in dollar sales 825,806 14 15

25.20 =$36 - $10.80 19500 =$210,600 / $10.80 702,000 =$210,600 / 30% 29,000 =($210,600+$102,600) / $10.80 $ 1,044,000 =($210,600+$102,600) / 30% 14,625 =$210,600 / $14.40 $526,500.00 =$210,600 / 40% 783000 =($210,600+$102,600) / 40% Variable expense per unit Break - even point in units Break - even point in dollar sales Unit sales needed to attain target profit $102,600 Dollar sales need to attain target profit $102.600 New break-even point in unit sales New break-even point in dollar sales Dollar sales needed to attain target profit $102,600 |=Selling price per unit - Contribution Margin per unit =Fixed Cost / Contribution Margin per unit =Fixed Cost / Contribution Margin Ratio =(Fixed Cost + target profit) / Contribution Margin per unit =(Fixed Cost + target profit) / Contribution Margin Ratio =Fixed Cost / Contribution Margin per unit =Fixed Cost / Contribution Margin Ratio |=(Fixed Cost + target profit) / Contribution Margin Ratio 1 1 3 4 4 8 Sellin Price per unit Contribution Margin Ratio Contribution Margin Per Unit Contribution Margin Per Unit Fixed Expenses No. of units sold Variable Expense per unit reduce variable expense by New Variable Expense per unit New Contribution Margin per unit New Contribution Margin Ratio 2$ 36 10 30% =$36 * 30% 11 12 10.80 13 210,600 14 22,300 15 2$ 25.20 16 3.60 17 21.60 18 14.40 19 40% 20 21

Proposal - 3 Proposal - 2 Increase by 90 units Decrease by 90 units 7700 Proposal - 1 Present Per Units Amount 2 3 Sales Units 4 Sales Dollars 5 Less: Variable Expenses |18 6 Contribution Margin 7 Less: Fixed Expenses 8 Net Operating Income =C3+90 |=C3*$B$4 =D3*$B$4 =C3*$B$5 =D3*$B$5 =C3-90 8700 =E3*$B$4 33 =F3*$B$4 |=F3*$B$5 |=F4-F5 54400 -ЕЗ*$B$5 =C4-C5 54400 =C6-C7 =B4-B5 |=D4-D5 |54400 =E4-E5 54400 =E6-E7 =D6-D7 =F6-F7 9. 10

Н K N Required - 3 Total Company Increase sales by $52,000 |=M4+52000 Required - 1 |Flight Dynamic Amount % 750000 1 1 Sure Shot Amount % 250000 1 Amount % 3 4 Sales 5 Less: Variable Expenses =14-16 6 Contribution Margin 7 Less: Fixed Expenses 8 Net Operating Expenses |=14+K4 |=J4-J6 =K4-K6 =L4-L6 =15+K5 =N4-N6 =M5 =16+K6 =M6/M4 =04-05 =M7 |=06-07 |=14*J6 0.68 =K4*L6 0.75 576000 =M6-M7 Required - 2 10 11 Break even point in dollar sales 12 Break even point in dollar sales 13 Break even point in dollar sales =Fixed Cost / Contribution Margin Ra =$576,000 / 70% =M7/N6 14 15 16

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