Question

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

	Total			Per Unit
Sales (9,000 units)	$	306,000		$	34.00
Variable expenses		171,000			19.00
Contribution margin		135,000		$	15.00
Fixed expenses		54,400
Net operating income	$	80,600

Required:

(Consider each case independently):

1. What would be the revised net operating income per month if the sales volume increases by 70 units?

2. What would be the revised net operating income per month if the sales volume decreases by 70 units?

3. What would be the revised net operating income per month if the sales volume is 8,000 units?

Answer 1

Sales Variable Expense Contribution Margin Fixed Expense Net Operating Income 34 306000 19 171000 15 135000 54400 80600 A. If sales volume increase by 70% it will lead to 70% increase in contribution and that will lead to increase in operating income. 135000*70% $94,500.00 increase in Net operating Income $80,600.00 existing income $175,100.00 Total income after increase B If sales volume decrease by 70% It will lead to decrease in contribution and will result in Operating Loss $94,500.00 decrease in contribution $80,600.00 existing income -$13,900.00 Net Operating Loss after Decrease C If Sales Volume is 8000 units Sales Variable Expense Contribution Margin Fixed Expense Net Operating Income 34 272000 19 152000 15 120000 54400 65600