Chapter 11, Problem 11.31E

To determine

Contribution Margin:

The amount of the contribution margin is the difference between the selling price of per unit and variable cost of per unit. Here contribution is the part of the sales revenue.

Operating Income:

The outcome of deduction of operating expense and depreciation from the gross income is called as operating income. The operating income realized before any payment pertaining to interest and taxes payable.

Variable Cost:

The Variable cost is that cost which varies with increase or decrease in the level of production. The Variable cost of per unit remains same. Here, it can be said that variable cost has the positive relationship with output of production.

Fixed Cost:

The Fixed cost is that cost which does not change with increase or decrease in the level of production, but per unit fixed changes with change in the level production. Examples of the fixed cost are rent, wages and insurance.

To determine: Action taken by N to maximize its operating income and factor that should be considered before making decision.