Souza Inc, which produces and sells a single product, has provided its contribution format income statement for October. If the company sells 3,500 units, its net operating income should be closest to:

Question

Souza Inc, which produces and sells a single product, has provided its contribution format income statement for October.  If the company sells 3,500 units, its net operating income should be closest to:

Quizplus · Accepted Answer

Selling price per unit = $88,000 ÷ 4,000 units = $22 per unit
Variable expense per unit = $40,000 ÷ 4,000 units = $10 per unit
Unit CM = $22 per unit - $10 per unit = $12 per unit
Profit = Unit CM × Q - Fixed expenses
= $12 per unit × 3,500 units - $41,700 = $42,000 - $41,700 = $300

Souza Inc, Which Produces and Sells a Single Product, Has