Assume the following information: Amount Per Unit Sales$300,000 $40 Variable expenses 120,000 16 Contribution margin 180,000 $24 Fixed expenses.

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Question

Assume the following information: Amount Per Unit Sales$300,000 $40 Variable expenses 120,000 16 Contribution margin 180,000 $24 Fixed expenses.

Assume the following information:

Amount Per Unit

Sales$300,000 $40

Variable expenses 120,000 16

Contribution margin 180,000 $24

Fixed expenses 79,000

Net operating income$101,000

If the selling price per unit increases by 10% and unit sales drop by 5%, then the best of estimate of the new net operating income is:

business accounting

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Answer 1

Answer #1

Current units sold=($300,000/40)=7500 units

Hence new units sold=7500*(1-0.05)=7125 units

Sales(7125(401.1))	313500
Variable expenses(7125*16)	114,000
Contribution margin	199500
Fixed expenses	79000
Net operating income	$120500

NOTE:Total fixed costs and variable cost per unit do not change with change in units

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Answer 2

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