Khan Corporation has budgeted the unit sales for April to be 5,000 units. The sales price is $25 per unit, and production costs are $10 per unit. Monthly utility expenses are estimated to be $2,000 plus $2 per unit, whereas selling expenses are estimated to be $12,000. The company pays a monthly rent of $2,000. What is the net operating income in the company's planning budget

Question

Business

Tori Copeland

31 August, 00:51

Khan Corporation has budgeted the unit sales for April to be 5,000 units. The sales price is $25 per unit, and production costs are $10 per unit. Monthly utility expenses are estimated to be $2,000 plus $2 per unit, whereas selling expenses are estimated to be $12,000. The company pays a monthly rent of $2,000. What is the net operating income in the company's planning budget

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Johnathon Holmes · Answer 1

Answer: The Net Operating Income (NOI) is $49,000

Explanation: The formula for calculating Net Operating Income is given as:

NOI = RR - OE

Where:

RR = Real estate Revenue.

OE = Operating Expenses.

From the question above, we can calculate the RR by multiplying the total units by the price of one unit, thus:

RR = 5,000 X $25

RR = $125,000

To calculate the OE, we will add all the expenses incurred by the corporation, thus:

Production costs = 5,000 units X 10 = $50,000.

Monthly utility expenses = $2,000 + ($2 X 5000 units)

= $2,000 + $10,000 = $12,000.

Selling expenses = $12,000.

Monthly rent = $2,000.

Therefore total OE = $50,000 + $12,000 + $12,000 + $2,000

OE = $76,000.

Having gotten the RR and OE, we can now calculate for NOI thus:

NOI = RR - OE

NOI = $125,000 - $76,000

NOI = $49,000.