Thomason Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range.
| Sales (1,000 units) | $ | 40,000 |
| Variable expenses | 30,000 | |
| Contribution margin | 10,000 | |
| Fixed expenses | 7,000 | |
| Net operating income | $ | 3,000 |
If the variable cost per unit increases by $1, spending on advertising increases by $2,000, and unit sales increase by 50 units, the net operating income would be closest to:
Multiple Choice
Explanation
| Selling price per unit ($40,000 ÷ 1,000 units) | $ | 40 |
| Variable cost per unit ($30,000 ÷ 1,000 units) | 30 | |
| Unit contribution margin | $ | 10 |
| Selling price | $ | 40 | per unit |
| Variable cost per price ($30 per unit + $1 per unit) | 31 | per unit | |
| Unit contribution margin (a) | $ | 9 | per unit |
| Unit sales (1,000 units + 50 units) (b) | 1,050 | units | |
| Contribution margin (a) × (b) | $ | 9,450 | |
| Fixed expenses ($7,000 + $2,000) | 9,000 | ||
| Net operating income | $ | 450 | |
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