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: Sales (7,300 units) Variable expenses Contribution margin Fixed expenses Net operating income Total $ 248,200 138,700 109,500 54,500 $ 55,000 Per Unit $ 34.00 19.00 $ 15.00 Required: (Consider each case independently): 1. What would be the revised net operating income per month if the sales volume increases by 80 units? 2. What would be the revised net operating income per month if the sales volume decreases by 80 units? 3. What would be the revised net operating income per month if the sales volume is 6,300 units? 1. Revised net operating income 2. Revised net operating income 3. Revised net operating income

Answer 1

1)

Revised net operating income ifsale increases by 80 units

= existing income +(80×contribution margin per unit)

=55000+(80×15)

= $ 56200

Thus the correct answer for part 1) $ 56200

Part 2)

Revised net income if sales decreases by 80 units

= existing income- ( contribution margin x 80)

= 55000 - (80×+5)

= $ 53800

Thus the correct answer for part 2) $ 53800

Part 3)

Revised net income for 6300 units

= (6300× contribution margin) - fixed cost

= (6300×15) - 54500

= $ 40000

Thus the correct answer is $ 40000