Question

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

	Total			Per Unit
Sales (7,200 units)	$	230,400		$	32.00
Variable expenses		136,800			19.00
Contribution margin		93,600		$	13.00
Fixed expenses		54,700
Net operating income	$	38,900

(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 6,200 units?

Answer 1

Ans. 1	New sales volume (7,200 + 80) = 7,280 units
	*Fixed costs remain constant on each level of sales.
		Total	Per unit
	Sales (7,280 *p)	$232,960	$32.00
	Variable expenses (7,280 * v)	-$138,320	-$19.00
	Contribution margin	$94,640	$13.00
	Fixed expenses	-$54,700
	Revised net operating income	$39,940
	P   =   price per unit
	V = variable cost per unit
Ans. 2	New sales volume (7,200 - 80) = 7,120 units
		Total	Per unit
	Sales (7,120 *p)	$227,840	$32.00
	Variable expenses (7,120 * v)	-$135,280	-$19.00
	Contribution margin	$92,560	$13.00
	Fixed expenses	-$54,700
	Revised net operating income	$37,860
	P   =   price per unit
	V = variable cost per unit
Ans. 3	New sales volume = 6,200 units
		Total	Per unit
	Sales (6,200 *p)	$198,400	$32.00
	Variable expenses (6,200 * v)	-$117,800	-$19.00
	Contribution margin	$80,600	$13.00
	Fixed expenses	-$54,700
	Revised net operating income	$25,900
	P   =   price per unit
	V = variable cost per unit