Chapter 1, Problem 2AE

To determine

Variable cost, fixed cost, contribution margin, net operating income:

Variable costs are directly related with production process, so it has the changes according to the sales revenue.

Fixed costs are indirectly related with production process, so it hasn’t change according to the sales revenue.

Contribution income is derived after deducting variable costs from sales revenue.

Net operating income is the real income for the company because it has derived after deduction all costs such as variable and fixed costs from sales revenue.

Whether increase of sales by 10% would change the variable costs and fixed costs.

Whether contribution margin increased or not by the new sales revenue (10%).

Whether net operating income increased or not by new sales revenue (10%).