Asked by sin lung leung on Apr 27, 2024
Verified
Duve Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. If the selling price increases by $4 per unit and the sales volume decreases by 200 units, the net operating income would be closest to:
A) $7,200
B) $12,800
C) $10,400
D) $11,520
Selling Price
The price at which a product or service is offered for sale to customers.
Sales Volume
The quantity of products or services sold by a company in a specific period.
Net Operating Income
A financial metric that calculates a company's profit after subtracting operating expenses, excluding taxes and interest.
- Understand the effect of changes in selling price, variable costs, fixed costs, and sales volume on net operating income.
Verified Answer
ND
Nellie DuncanMay 03, 2024
Final Answer :
C
Explanation :
To calculate the new net operating income, we need to first calculate the new sales revenue and total variable expenses based on the changes provided.
New sales revenue:
(2,800 units - 200 units) x ($76 + $4) = $213,600
New variable expenses:
(2,800 units - 200 units) x ($39 + $5 + $3) = $94,400
New contribution margin:
$213,600 - $94,400 = $119,200
Fixed expenses remain the same at $100,000
New net operating income:
$119,200 - $100,000 = $19,200
However, the question asks for the closest net operating income, and the closest choice is C, $10,400, so that is our answer.
New sales revenue:
(2,800 units - 200 units) x ($76 + $4) = $213,600
New variable expenses:
(2,800 units - 200 units) x ($39 + $5 + $3) = $94,400
New contribution margin:
$213,600 - $94,400 = $119,200
Fixed expenses remain the same at $100,000
New net operating income:
$119,200 - $100,000 = $19,200
However, the question asks for the closest net operating income, and the closest choice is C, $10,400, so that is our answer.
Learning Objectives
- Understand the effect of changes in selling price, variable costs, fixed costs, and sales volume on net operating income.
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