Question

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

	Total			Per Unit
Sales (8,700 units)	$	304,500		$	35.00
Variable expenses		165,300			19.00
Contribution margin		139,200		$	16.00
Fixed expenses		55,800
Net operating income	$	83,400

Required:

(Consider each case independently):

1. What would be the revised net operating income per month if the sales volume increases by 60 units?

2. What would be the revised net operating income per month if the sales volume decreases by 60 units?

3. What would be the revised net operating income per month if the sales volume is 7,700 units?

Answer 1

1) Calculation of revised net operating income if sales volume increases by 60 units

Particulars	Amount
Sales((8700+60)×$35)	$306,600
Less: variable expenses ((8700+60)×$19)	$166,440
Contribution	$140,160
Less: Fixed cost	$55,800
Revised Net operating income	$84,360

2) Calculation of revised net operating income if sales volume Decrease by 60 units.

Particulars	Amount
Sales( (8700-60)×$35)	$302,400
Less: variable expenses (($8700-60)×$19)	$164,160
Contribution	$138,240
Less: Fixed cost	$55,800
Revised Net operating income	$82,440

3) Calculation of revised net operating income if sales volume is 7700 units.

Particulars	Amount
Sales (7700×$35)	$269,500
Less: Variable expense (7700×$19)	$146,300
Contribution	$123,200
Less: Fixed cost	$55,800
Revised net operating income	$67,400

Note: Fixed cost is constant in total and it will not change with respect to output.

Variable cost per unit is constant and in total it changes , so it changes with respect to output.