Certosimo Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.?Sales (7,000 units)$350,000?Variable expenses245,000?Contribution margin105,000?Fixed expenses97,500?Net operating income$7,500Required:a. If sales increase to 7,040 units, what would be the estimated increase in net operating income?b. If sales decline to 6,900 units, what would be the estimated net operating income?
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 ($350,000 ÷ 7,000 units) | $50 |
| ? | Variable cost per unit ($245,000 ÷ 7,000 units) | 35 |
| ? | Unit contribution margin | $15 |
| ? | Unit contribution margin (a) | $15 | per unit |
| ? | Increased unit sales (b) | 40 | units |
| ? | Increase in net operating income (a) × (b) | $600 | ? |
b.
| ? | Unit contribution margin (a) | $15 | per unit |
| ? | Unit sales (b) | 6,900 | units |
| ? | Contribution margin (a) × (b) | $103,500 | ? |
| ? | Fixed expenses | 97,500 | ? |
| ? | Net operating income | $6,000 | ? |
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