Question

Creswell Corporation's fixed monthly expenses are $29,000 and its contribution margin ratio is 56%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $95,000? Multiple Choice $12,800 $53,200 $24.200 $66,000

Answer 1

Solution :

As per the information given in the question we have

Monthly Sales = $ 95,000 ; Contribution margin ratio = 56 % = 0.56 ;

Thus the estimated monthly Contribution margin = Monthly Sales * Contribution margin ratio

= $ 95,000 * 0.56

= $ 53,200

The formula for calculating the monthly net operating income is

= Monthly Contribution margin – Monthly fixed expenses

As per the information available we have

Monthly Contribution margin = $ 53,200 ; Monthly Fixed expenses = $ 29,000

Applying the available information in the formula we have monthly net operating income is

= $ 53,200 – 29,000

= $ 24,200

Thus the Net operating income = $ 24,200

The solution is option 3 = $ 24,200