The following is Addison Corporation's contribution format income statement for last month: The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.
-If sales increase by 100 units, by how much should net operating income increase?

Question

The following is Addison Corporation's contribution format income statement for last month:  The company has no beginning or ending inventories. A total of 20,000 units were produced and sold last month.
-If sales increase by 100 units, by how much should net operating income increase?

Quizplus · Accepted Answer

To calculate the increase in net operating income, we need to calculate the contribution margin per unit and then multiply it with the increase in units sold.

Contribution margin per unit = Sales price per unit - Variable cost per unit
= $20 - $8
= $12

Contribution margin for 20,000 units = $12 x 20,000 = $240,000

Contribution margin for 20,100 units = $12 x 20,100 = $241,200

Increase in contribution margin = $241,200 - $240,000 = $1,200

Net operating income increase = Increase in contribution margin - Fixed cost
= $1,200 - $300
= $900

Therefore, the net operating income should increase by $900 if sales increase by 100 units. None of the other answer choices match this calculation. The correct answer is C.

The Following Is Addison Corporation's Contribution Format Income Statement for Last