Ask Question
16 April, 17:48

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 (7,200 units) $ 237,600 $ 33.00 Variable expenses 136,800 19.00 Contribution margin 100,800 $ 14.00 Fixed expenses 54,900 Net operating income $ 45,900 Required: (Consider each case independently) : 1. What would be the revised net operating income per month if the sales volume increases by 40 units? 2. What would be the revised net operating income per month if the sales volume decreases by 40 units? 3. What would be the revised net operating income per month if the sales volume is 6,200 units?

+2
Answers (1)
  1. 16 April, 19:59
    0
    See the explanation.

    Explanation:

    Requirement 1

    New sales volume after increasing 40 units = (7,200 + 40) = 7,240 units. The revised net operating income is calculated as follows

    Whirly Corporation's

    Contribution format income statement

    For the year ended December 31 20YY

    Sales Revenue (7,240 * 33) = $ 237,600 (Note - 1)

    Less: Variable expense (7,240 * 19) = 136,800 (Note - 2)

    Contribution Margin = $100,800

    Less: Fixed Expense $54,900

    Net Operating Income $45,900

    Note 1: Sale price per unit $237,600 : 7,200 = $35

    Note 2: Variable expense per unit $136,800 : 7,200 = $20

    Requirement 2

    From requirement 1 we get,

    Sale price per unit = $33

    Variable expense per unit = $19

    New sales volume after decreasing 40 units = (7,200 - 40) = 7,160 units. The revised net operating income is calculated as follows

    Whirly Corporation's

    Contribution format income statement

    For the year ended December 31 20YY

    Sales Revenue (7,160 * 33) = $236,280

    Less: Variable expense (7,160 * 19) = $136,040

    Contribution Margin = $100,240

    Less: Fixed Expense $54,900

    Net Operating Income $45,340

    Requirement 3

    From requirement 1 we get

    Sale price per unit = $33

    Variable expense per unit = $19

    If the sales volume is 6,200 units, the revised net operating income is calculated as follows

    Whirly Corporation's

    Contribution format income statement

    For the year ended December 31 20YY

    Sales Revenue (6,200 * 33) = $204,600

    Less: Variable expense (6,200 * 19) = $117,800

    Contribution Margin = $86,800

    Less: Fixed Expense $54,900

    Net Operating Income $31,900

    If the company sells 6,200 units, the company can still make a profit.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Exercise 5-1 The Effect of Changes in Activity on Net Operating Income [LO5-1] Whirly Corporation's contribution format income statement ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers