Pepper Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (1,000 units) Variable expenses Contribution margin Fixed expenses Net operating income $ 40,000 30,000 10,000 7,000 $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:
Pepper Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (1,000 units) Variable expenses Contribution margin Fixed expenses Net operating income $ 40,000 30,000 10,000 7,000 $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:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Step 1
Solution:
Existing contribution margin per unit = Contribution margin / Nos of units sold
= $10,000 / 1000 = $10 per unit
New contribution margin per unit = Existing contribution margin per unit - Increase in variable cost per unit
= $10 - $1
= $9 per unit
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