Question

Exercise 5-1 The Effect of Changes in Activity on Net Operating Income [LO5-1]

Whirly Corporation’s contribution format income statement for the most recent month is shown below:

	Total			Per Unit
Sales (8,600 units)	$	258,000		$	30.00
Variable expenses		163,400			19.00
Contribution margin		94,600		$	11.00
Fixed expenses		54,400
Net operating income	$	40,200

Required:

(Consider each case independently):

1. What would be the revised net operating income per month if the sales volume increases by 100 units?

2. What would be the revised net operating income per month if the sales volume decreases by 100 units?

3. What would be the revised net operating income per month if the sales volume is 7,600 units?

Answer 1

1.) IF SALES UNIT INCREASED BY 100 UNITS = 8600 UNITS +100 UNITS = 8700 UNITS OPERATING INCOME STATEMENT PARTICULARS TOTA SALES $261,000 TOMMT PER UNIT $30 SALES UNITS 8700 $19 8700 LESS VARIABLE COST CONTRIBUTION $165,300 $95,700 $11 FIXED EXPENSES NET OPERATING INCOME $54,400 $41,300 2.) IF SALES UNIT DECREASED BY 100 UNITS = 8600 UNITS -100 UNITS = 8500 UNITS OPERATING INCOME STATEMENT PARTICULARS TOTAL $255,000 SALES UNITS SALES PER UNIT $30 8500 $19 LESS VARIABLE COST CONTRIBUTION 8500 $161,500 $93,500 FIXED EXPENSES NET OPERATING INCOME $54,400 $39,100

3.) IF SALES UNIT ARE 7600 UNITS OPERATING INCOME STATEMENT PARTICULARS TOTAL PER UNIT SALES $228,000 $30 WILL SALES UNITS 7600 $19 7600 LESS VARIABLE COST CONTRIBUTION $144,400 $83.600 FIXED EXPENSES NET OPERATING INCOME $54,400 $29,200