Question

question 1 - Salt Corporation's contribution margin ratio is 70% and its fixed monthly expenses are $50,000. Assume that the company's sales for May are expected to be $109,000.

Required: Estimate the company's net operating income for May, assuming that the fixed monthly expenses do not change.

question 2- Fern Corporation manufacturers a single product that has a selling price of $20.00 per unit. Fixed expenses total $42,000 per year, and the company must sell 6,000 units to break even. If the company has a target profit of $14,000, sales in units must be:

question 3-

Grape Inc., which produces and sells a single product, has provided the following contribution format income statement for March:

Sales (5,000 units)	$	290,000
Variable expenses		100,000
Contribution margin		190,000
Fixed expenses		105,700
Net operating income	$	84,300

Required:

Redo the company's contribution format income statement assuming that the company sells 5,200 units.

Answer 1

Question - 1.

>> Contribution margin for May = $ 109,000 * 70 %

>> Contribution margin for May = $ 76,300.

>> Net Operating Income = Contribution margin - Fixed cost

>> Net Operating Income = $ 76,300 - $ 50,000

>> Net Operating Income = $ 26,300.

Question -2

>> Break even point in units = Fixed cost / Contribution margin per unit

>> Contribution margin per unit = Fixed cost / Break even units

>> Contribution margin per unit = $ 42,000 / 6,000

>> Contribution margin per unit = $ 7

>> Target sales units = ( Fixed cost + Desired profit ) / Contribution margin per unit

>> Target sales units = ( $ 42,000 + $ 14,000 ) / $ 7

>> Target sales units = 8,000 Units.

Question -3

Income Statement

Particulars	5,000 Units	per unit	5,200 Units
Sales	$ 290,000	$ 58	$ 301,600
Variable Expenses	$ 100,000	$ 20	$ 104,000
Contribution margin	$ 190,000	$ 38	$ 197,600
Fixed Expenses	$ 105,700		$ 105,700
Net Operating income	$ 84,300		$ 91,900