If sales decline to 2,900 units, the net operating income would be closest to:

A) $1,050
B) $30,450
C) $10,150
D) $9,450

Question

If sales decline to 2,900 units, the net operating income would be closest to:A) $1,050B) $30,450C) $10,150D) $9,450

April Vasquez · Accepted Answer

Final Answer : D, Explanation :  First, we need to calculate the contribution margin per unit:Selling price per unit = $40Variable cost per unit = $22Contribution margin per unit = Selling price - Variable cost = $40 - $22 = $18Next, we can calculate the breakeven point in units:Breakeven point = Fixed costs / Contribution margin per unitBreakeven point = $40,500 / $18 = 2,250 unitsIf sales decline to 2,900 units, we need to calculate the loss in net operating income compared to the breakeven point:2,900 units - 2,250 units = 650 units below breakeven pointLoss in net operating income = 650 units x $18 = $11,700Therefore, the net operating income at 2,900 units is:Net operating income = $30,450 (breakeven point) - $11,700 (loss) = $18,750This is closest to answer choice D) $9,450, which is incorrect. The correct answer is D) $18,750.     Reference: CHO6-Ref4Souza Inc, which produces and sells a single product, has provided its contribution format income statement for October.

If sales decline to 2,900 units, the net operating income would be closest to:

A) $1,050
B) $30,450
C) $10,150
D) $9,450

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