Question

Exercise 2-1 (Algo) The Effect of Changes in Activity on Net Operating Income [LO2-1] Whirly Corporation’s contribution format income statement for the most recent month is shown below: Total Per Unit Sales (7,500 units) $ 232,500 $ 31.00 Variable expenses 150,000 20.00 Contribution margin 82,500 $ 11.00 Fixed expenses 54,800 Net operating income $ 27,700 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 60 units? 2. What would be the revised net operating income per month if the sales volume decreases by 60 units? 3. What would be the revised net operating income per month if the sales volume is 6,500 units?

Answer 1

	Units	7,500
	Sales	$232,500
	Less: Variable expenses	$150,000
	Contribution margin	$82,500
	Less: Fixed expenses	$54,800
	Net operating income	$27,700
1
	Units	7,560
	Sales	$234,360	(7,560 x $31)
	Less: Variable expenses	$151,200	(7,560 x $20)
	Contribution margin	$83,160
	Less: Fixed expenses	$54,800
	Net operating income	$28,360
2
	Units	7,440
	Sales	$230,640	(7,440 x $31)
	Less: Variable expenses	$148,800	(7,440 x $20)
	Contribution margin	$81,840
	Less: Fixed expenses	$54,800
	Net operating income	$27,040
3	Units	6,500
	Sales	$201,500	(6,500 x $31)
	Less: Variable expenses	$130,000	(6,500 x $20)
	Contribution margin	$71,500
	Less: Fixed expenses	$54,800
	Net operating income	$16,700