Nocum Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. If sales decline to 2,900 units, the net operating income would be closest to:

A) $29,000
B) $1,000
C) $8,700
D) $8,000

Question

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

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

A) $29,000
B) $1,000
C) $8,700
D) $8,000

Areana Padilla · Accepted Answer

Final Answer : D, Explanation :  To calculate the net operating income at 2,900 units, we need to use the contribution margin ratio to determine the contribution margin per unit and then subtract the total fixed expenses from it.Contribution margin ratio = (Total sales - Total variable expenses) / Total sales= ($145,000 - $87,000) / $145,000= 0.4 or 40%Contribution margin per unit = Selling price per unit x Contribution margin ratio= $50 x 0.4= $20Total contribution margin at 2,900 units = 2,900 units x $20= $58,000Net operating income = Total contribution margin - Total fixed expenses= $58,000 - $50,000= $8,000Therefore, the net operating income at 2,900 units would be $8,000, which is closest to option D ($8,000).

Nocum Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. If sales decline to 2,900 units, the net operating income would be closest to:

A) $29,000
B) $1,000
C) $8,700
D) $8,000

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Nocum Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. If sales decline to 2,900 units, the net operating income would be closest to:A) $29,000B) $1,000C) $8,700D) $8,000

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Learning Objectives

Related questions

Nocum Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range. If sales decline to 2,900 units, the net operating income would be closest to:

A) $29,000
B) $1,000
C) $8,700
D) $8,000