The following income statement was produced when volume of sales was at 400 units. $$\begin{array} { | l | l r | }
\hline \text { Sales Revenue } & \$ & 2,000 \
\hline\text { Variable Cost } & & 1,200 \
\hline \text { Contribution Margin } & \$ & 800 \
\hline\text { Fixed Cost } & & 300 \
\hline \text { Net Income } & \$ & 500 \
\hline
\end{array}$$ If volume reaches 500 units, net income will be:
A)$625
B)$1,800
C)$700
D)None of the above

Question

The following income statement was produced when volume of sales was at 400 units. $$\begin{array} { | l | l r | } 
\hline \text { Sales Revenue } & \$ & 2,000 \
\hline\text { Variable Cost } & & 1,200 \
\hline \text { Contribution Margin } & \$ & 800 \
\hline\text { Fixed Cost } & & 300 \
\hline \text { Net Income } & \$ & 500 \
\hline
\end{array}$$ If volume reaches 500 units, net income will be:
A)$625
B)$1,800
C)$700
D)None of the above

Quizplus · Accepted Answer

The contribution margin per unit is $800/400 = $2. At 500 units, the contribution margin is $1,000. Subtracting fixed costs of $300 gives a net income of $700.

The Following Income Statement Was Produced When Volume of Sales