Question

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

Answer 1

Answer:

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