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2 June, 13:19

Duve Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range.

Sales (2,000 units) $ 40,000

Variable expenses 24,000

Contribution margin 16,000

Fixed expenses 11,200

Net operating income $ 4,800

If the selling price increases by $4 per unit and the sales volume decreases by 200 units, the net operating income would be closest to:

A.$7,200

B.$12,800

C.$10,400

D.$11,520

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Answers (1)
  1. 2 June, 13:45
    0
    Option (c) is correct.

    Explanation:

    Given that,

    Sales (2,000 units) = $ 40,000

    Variable expenses = 24,000

    Contribution margin = 16,000

    Fixed expenses = 11,200

    Net operating income = $4,800

    Selling price per unit:

    = Sales : Number of units

    = $ 40,000 : 2,000

    = $20

    Contribution margin:

    = Sales - Variable costs

    = [ ($20 + $4) * (2,000 units - 200 units) ] - [ (24,000 : 2,000) * 1,800 units]

    = $43,200 - $21,600

    = $21,600

    Net operating income:

    = Contribution margin - Fixed expenses

    = $21,600 - $11,200

    = $10,400
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