Wright Corporation's contribution format income statement for last month appears below:
$\begin{array} {| l | r | }
\hline \text { Sales } & \$ 45,000 \
\hline \text { Less: variable expenses } & \underline { 27,000 } \
\hline \text { Contribution margin } & 18,000 \
\hline \text { Less: fixed expenses } & \underline { 12,000 } \
\hline \text { Operating income } & \$ 6,000 \
\hline
\end{array}$There were no beginning or ending inventories. The company produced and sold 3,000 units during the month

-If sales decrease by 500 units in the next month,by how much would fixed expenses have to be reduced to maintain the current operating income?
A) $7,500.
B) $6,000.
C) $2,000.
D) $3,000.

Question

Wright Corporation's contribution format income statement for last month appears below:
$\begin{array} {| l | r | } 
\hline \text { Sales } & \$ 45,000 \
\hline \text { Less: variable expenses } & \underline { 27,000 } \
\hline \text { Contribution margin } & 18,000 \
\hline \text { Less: fixed expenses } & \underline { 12,000 } \
\hline \text { Operating income } & \$ 6,000 \
\hline
\end{array}$There were no beginning or ending inventories. The company produced and sold 3,000 units during the month

-If sales decrease by 500 units in the next month,by how much would fixed expenses have to be reduced to maintain the current operating income?
A) $7,500.
B) $6,000.
C) $2,000.
D) $3,000.

Quizplus · Accepted Answer

Fixed expenses would need to be reduced by $3,000 to maintain the current operating income after a decrease in sales by 500 units. The contribution margin per unit is $18,000 / 3,000 units = $6 per unit. A decrease of 500 units would result in a decrease in total contribution margin by 500 units * $6/unit = $3,000. To maintain the same operating income, fixed expenses would need to be reduced by this amount.

Wright Corporation's Contribution Format Income Statement for Last Month Appears