The April contribution format income statement of Iannacone Corporation appears below:
-If the company's sales increase by 1%, its net operating income should increase by about:

Question

The April contribution format income statement of Iannacone Corporation appears below: 
-If the company's sales increase by 1%, its net operating income should increase by about:

Quizplus · Accepted Answer

According to the contribution format income statement, the company's contribution margin ratio is 40%. This means that for every additional dollar of sales, the company will earn $0.40 of contribution margin. If sales increase by 1%, the contribution margin will increase by 1% x 40% = 0.4%. If the contribution margin increases by 0.4% and fixed expenses remain unchanged, then net operating income should increase by approximately 0.4%. Therefore, the answer is C) 4%.

The April Contribution Format Income Statement of Iannacone Corporation Appears