Decaprio Inc. produces and sells a single product. The company has provided its contribution format income statement for June.

Sales (5,600 units) $ 224,000

Variable expenses 117,600

Contribution margin 106,400

Fixed expenses 86,700

Net operating income $ 19,700

If the company sells 5,800 units, its net operating income should be closest to:

a. $23,500

b. $19,700

c. $27,700

d. $20,404

If the company sells 5,800 units, its net operating income should be closest to: a. $23,500

Explanation:

Selling price per unit = $224,000/5,600 = $40

Variable expenses per unit = $117,600/5,600 = $21

If the company sells 5,800 units,

Total sales = $40 x 5,800 = $232,000

Variable expenses = $21 x 5,800 = $121,800

Net operating income = Total sales - Variable expenses - Fixed expenses = $232,000 - $121,800 - $86,700 = $23,500