Stonebraker Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.?Sales (9,000 units)$270,000?Variable expenses 189,000?Contribution margin81,000?Fixed expenses 77,400?Net operating income $3,600Required:a. If sales increase to 9,040 units, what would be the estimated increase in net operating income?b. If the variable cost per unit increases by $6, spending on advertising increases by $3,000, and unit sales increase by 19,200 units, what would be the estimated net operating income?j. Estimate how many units must be sold to achieve a target profit of $26,100.
What will be an ideal response?
a. The increase in net operating income would be the increased contribution margin because fixed expenses are not affected.
| ? | Selling price per unit ($270,000 ÷ 9,000 units) | $30 |
| ? | Variable cost per unit ($189,000 ÷ 9,000 units) | 21 |
| ? | Unit contribution margin | $9 |
| ? | Unit contribution margin (a) | $9 | per unit |
| ? | Increased unit sales (b) | 40 | units |
| ? | Increase in net operating income (a) × (b) | $360 | ? |
b.
| ? | Selling price | $30 | per unit |
| ? | Variable cost per price ($21 per unit + $6 per unit) | 27 | per unit |
| ? | Unit contribution margin (a) | $3 | per unit |
| ? | Unit sales (9,000 units + 19,200 units) (b) | 28,200 | units |
| ? | Contribution margin (a) × (b) | $84,600 | ? |
| ? | Fixed expenses ($77,400 + $3,000) | 80,400 | ? |
| ? | Net operating income | $4,200 | ? |
c. Unit sales to attain a target profit = (Target profit + Fixed expenses) ÷ Unit CM
= ($26,100 + $77,400) ÷ $9 per unit = $103,500÷ $9 per unit = 11,500 units
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