Question

1. Homeboy Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.

	Sales (2,000 units)	$120,000
	Variable expenses	72,000
	Contribution margin	48,000
	Fixed expenses	33,600
	Net operating income	$14,400

Required:

If sales decline to 1,900 units, what would be the estimated net operating income?

If the selling price increases by $4 per unit and the sales volume decreases by 200 units, what would be the estimated net operating income?

What is the break-even point in dollar sales?

Answer 1

If sales decline to 1,900 units, what would be the estimated net operating income?
	Sales (120000/2000*1900 units )	$                  114,000
	Variable expenses(72000/2000*1900)	$                    68,400
	Contribution margin	$                    45,600
	Fixed expenses	$                    33,600
	Net operating income	$                    12,000
If the selling price increases by $4 per unit and the sales volume decreases by 200 units, what would be the estimated net operating income?
	Selling price per unit =($120000/2000)-4 =64
	Sales (64*2200 units )	$                  140,800
	Variable expenses(72000/2000*2200)	$                    79,200
	Contribution margin	$                    61,600
	Fixed expenses	$                    33,600
	Net operating income	$                    28,000
What is the break-even point in dollar sales?
Contribution margin ratio =$45600/114000
	=40%
Break-even point in dollars = Fixed cost / contribution margin ratio
	=$33600/40%
	=$84000