Question

Gayne Corporation's contribution margin ratio is 19% and its fixed monthly expenses are $52,500. If the company's sales for a month are $316,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change.

(A) $203,460
(B) $7,540
(C) $263,500
(D) $60,040

Answer 1

Answer:

Option (B) is correct.

Explanation:

Given that,

Contribution margin ratio = 19%

Fixed monthly expenses = $52,500

Sales for a month = $316,000

Contribution:

= Contribution margin ratio × Sales for a month

= 19% × $316,000

= $60,040

Net operating income:

= Contribution - Fixed monthly expenses

= $60,040 - $52,500

= $7,540

Therefore, the company's net operating income is $7,540.