Question

Sarratt Corporation contribution margin ratio is 75% and its fixed monthly expenses are $55,000. Assume that the company's sales for May are expected to be $114,000. Required: Estimate the company's net operating income for May, assuming that the fixed monthly expenses do not change.

Answer 1

Answer:

$30,500

Explanation:

Given that;

Sales revenue = $114,000

Variable costs = $114,000 × (1 - 75%)

= $114,000 × 0.25

= $28,500

Fixed costs = $55,000

Therefore, net operating income = Sales revenue - Variable costs - Fixed costs

= $114,000 - $28,500 - $55,000

= $30,500

The estimated net operating income for May is $30,500