Sjostrom Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. If the selling price increases by $3 per unit and the sales volume decreases by 600 units, the net operating income would be closest to:

Question

Sjostrom Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range.  If the selling price increases by $3 per unit and the sales volume decreases by 600 units, the net operating income would be closest to:

Quizplus · Accepted Answer

To calculate the new net operating income, we need to use the contribution margin per unit.

Contribution margin per unit = Selling price per unit - Variable expenses per unit
= $30 - $18
= $12

With an increase in the selling price by $3 per unit, the new selling price per unit would be $30 + $3 = $33.

Using the contribution margin per unit, the new contribution margin per unit would be:

New contribution margin per unit = New selling price per unit - Variable expenses per unit
= $33 - $18
= $15

With a decrease in sales volume by 600 units, the new sales volume would be:

New sales volume = 8,000 - 600
= 7,400 units

Now, the new net operating income can be calculated as:

New net operating income = (New sales volume x New contribution margin per unit) - Fixed expenses
= (7,400 x $15) - $62,400
= $111,000 - $62,400
= $48,600

Therefore, the net operating income would increase by $48,600 - $23,800 = $24,800. Thus, Option A is the correct answer.

Sjostrom Corporation Has Provided the Following Contribution Format Income Statement