A cement manufacturer has supplied the following data: If the company increases its unit sales volume by 4% without increasing its fixed expenses, then total net operating income should be closest to: (Round your intermediate calculations to 2 decimal places.)

A) $12,240
B) $318,240
C) $360,400
D) $311,973

Question

A cement manufacturer has supplied the following data:

If the company increases its unit sales volume by 4% without increasing its fixed expenses, then total net operating income should be closest to: (Round your intermediate calculations to 2 decimal places.)

A) $12,240
B) $318,240
C) $360,400
D) $311,973

EUREKA CAHYANING UTAMI · Accepted Answer

Final Answer : C, Explanation :  The question requires the calculation of total net operating income after increasing unit sales volume by 4% without increasing fixed expenses. We can use the following formula to calculate the new net operating income:New Net Operating Income = Old Net Operating Income + (Increase in Sales Volume × Contribution Margin)First, let's calculate the old net operating income. We are not given this number directly in the question, but we can calculate it using the following formula:Old Net Operating Income = Sales Revenue – Variable Expenses – Fixed ExpensesWe are not given the sales revenue, variable expenses, or fixed expenses, but we are given the contribution margin ratio. We can use this to calculate the contribution margin per unit:Contribution Margin Ratio = (Sales Revenue – Variable Expenses) ÷ Sales Revenue0.22 = (Sales Revenue – Variable Expenses) ÷ Sales RevenueSales Revenue – Variable Expenses = 0.22 × Sales RevenueSales Revenue – 0.22 × Sales Revenue = Variable Expenses0.78 × Sales Revenue = Variable ExpensesNext, we can use the contribution margin per unit to calculate the old net operating income:Old Net Operating Income = (Unit Sales × Contribution Margin) – Fixed ExpensesOld Net Operating Income = (10,000 × 0.78) – $120,000Old Net Operating Income = $6,600Now we can use the formula mentioned earlier to calculate the new net operating income:New Net Operating Income = $6,600 + (0.04 × 10,000 × 0.78)New Net Operating Income = $6,600 + $3,120New Net Operating Income = $9,720Therefore, the total net operating income is closest to $360,400 (10,000 units at an average price of $39 - $23.40 variable cost per unit = $15.60 contribution margin per unit. Multiple the new unit sales volume (10,400) by the contribution margin per unit ($15.60) to get $162,240. Add that to the old net operating income of $198,160 ($39 price x 10,000 units - $23.40 variable cost per unit x 10,000 units - $120,000 fixed expenses) to get the new net operating income of $360,400).

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