Nocum Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. If salesvolumes decline to 2,900 units, the net operating income would be closest to:

Question

Nocum Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range.  If salesvolumes decline to 2,900 units, the net operating income would be closest to:

Quizplus · Accepted Answer

To calculate the net operating income at 2,900 units, we need to use the contribution margin ratio (CM ratio) from the original income statement: 
CM ratio = Total contribution margin / Total sales
CM ratio = $87,000 / $174,000
CM ratio = 0.5 or 50%
Using the CM ratio, we can calculate the contribution margin (CM) at 2,900 units: 
CM = 2,900 units x $30 per unit x 50%
CM = $43,500
To calculate the net operating income, we need to subtract the fixed expenses: 
Net operating income = CM - Fixed expenses
Net operating income = $43,500 - $35,500
Net operating income = $8,000
Therefore, the answer is D) $8,000.

Nocum Corporation Has Provided the Following Contribution Format Income Statement