Question

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

	Total			Per Unit
Sales (8,900 units)	$	302,600		$	34.00
Variable expenses		169,100			19.00
Contribution margin		133,500		$	15.00
Fixed expenses		55,600
Net operating income	$	77,900

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 7,900 units?

Answer 1

Fixed Cost is the cost which is independent of the level of production or business activity. It doesn’t increase or decrease with the increase or decrease in the level of production. But the fixed cost per unit will (decrease)/increase with the increase/(decrease) in the level of production.

Variable Cost is the cost which is depended on the level of production or business activity. It increases or decreases with the increase or decrease in the level of production. But the variable cost per unit will remain constant irrespective of the increase/(decrease) in the level of production.