Question

Decaprio inc. produces and sells a single product. ine company nas provided its contribution tormat income statement for June. Sales (7,400 units) Variable expenses Contribution margin Fixed expenses Net operating income $259,000 148,000 111,000 87,300 $ 23,700 If the company sells 7.600 units, its net operating income should be closest to: (Do not round intermediate calculations.) Multiple Choice $26,700 $23.700 $30,700 Next > < Prev

Answer 1

Based on the above information in this problem, we derive the income statement as follows:

Income Statement

Particulars	For 7400 units	Per unit	For 7600 units
Sales (7400 units)	2,59,000	35	=35*7600=2,66,000
Less: Variable Expenses	1,48,000	20	=20*7600=1,52,000
Contribution	1,11,000	15	=15*7600=1,14,000
Less: Fixed Expenses	87,300		87,300
Net Operating income	23,700		26,700

Calculation of variable cost and sales on per unit basis

Sales = 2,59,000/7,400 = 35 per unit

Variable cost = 1,48,000/7,400 = 20 per unit

Also, Contribution margin = Sales - Variable Cost

We know that fixed cost remains the same irrespective of volume of units produced and sold.

On the basis of income statement, the correct answer is $26,700

Thus, the first option is the correct answer.