Reference: 08-14
Wright Corporation's contribution format income statement for last month appears below. $$\begin{array} { | l | c | }
\hline \text { Sales } & \$ 45,000 \
\hline \text { Less variable expenses } & 27,000 \
\hline \text { Contribution margin } & 18,000 \
\hline \text { Less fixed expenses } & 12,000 \
\hline \text { Net income } & \$ 6,000 \
\hline
\end{array}$$ There were no beginning or ending inventories. The company produced and sold 3,000 units during the month.
-If sales decrease by 500 units by next month, by how much would fixed expenses have to be reduced to maintain the current net income?

Question

Reference: 08-14
Wright Corporation's contribution format income statement for last month appears below. $$\begin{array} { | l | c | } 
\hline \text { Sales } & \$ 45,000 \
\hline \text { Less variable expenses } & 27,000 \
\hline \text { Contribution margin } & 18,000 \
\hline \text { Less fixed expenses } & 12,000 \
\hline \text { Net income } & \$ 6,000 \
\hline
\end{array}$$ There were no beginning or ending inventories. The company produced and sold 3,000 units during the month.
-If sales decrease by 500 units by next month, by how much would fixed expenses have to be reduced to maintain the current net income?

Quizplus · Accepted Answer

The contribution margin per unit is calculated as the total contribution margin divided by the number of units sold, which is $18,000 / 3,000 = $6 per unit. A decrease in sales by 500 units would result in a decrease in total contribution margin by $6 * 500 = $3,000. To maintain the current net income, fixed expenses would need to be reduced by the same amount, $3,000.

Reference: 08-14 Wright Corporation's Contribution Format Income Statement for Last

Reference: 08-14
Wright Corporation's Contribution Format Income Statement for Last