Question

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

	Total			Per Unit
Sales (7,700 units)	$	231,000		$	30.00
Variable expenses		154,000			20.00
Contribution margin		77,000		$	10.00
Fixed expenses		54,100
Net operating income	$	22,900

Required:

(Consider each case independently):

1. What would be the revised net operating income per month if the sales volume increases by 30 units?

2. What would be the revised net operating income per month if the sales volume decreases by 30 units?

3. What would be the revised net operating income per month if the sales volume is 6,700 units?

Answer 1

1. Revised net operating income per month if the sales volume increases by 30 units

If the sales volume increases by 30 units, the additional contribution margin = 30 units x $10 per unit = $300

Since the fixed expenses would remain the same, the revised net operating income is calculated as follows:

Existing net operating income + Additional contribution margin

= $22,900 + $300 = $23,200

2. Revised net operating income per month if the sales volume decreases by 30 units

If the sales volume decreases by 30 units, the contribution margin would decrease by 30 units x $10 per unit = $300

Since the fixed expenses would remain the same, the revised net operating income is calculated as follows:

Existing net operating income - Decrease in contribution margin

= $22,900 - $300 = $22,600

3. Revised net operating income per month if the sales volume is 6,700 units

If sales volume = 6,700 units, contribution margin = 6,700 units x $10 per unit = $67,000

Revised net operating income = Contribution margin - Fixed expenses

=> Revised net operating income = $67,000 - $54,100 = $12,900