Grisham Corporation produces and sells a single product. The company has provided its contribution format income statement for February. If the company sells 5,700 units, its net operating income should be closest to:
A)$20,400
B)$22,700
C)$20,764
D)$26,800

Question

Grisham Corporation produces and sells a single product. The company has provided its contribution format income statement for February.  If the company sells 5,700 units, its net operating income should be closest to:
A)$20,400 
B)$22,700 
C)$20,764 
D)$26,800

Quizplus · Accepted Answer

To calculate the net operating income, we need to use the contribution margin per unit and deduct the fixed expenses from it.

Contribution margin per unit = Selling price per unit – Variable expenses per unit

From the given income statement, we can calculate the contribution margin per unit as:

Contribution margin per unit = $50 – $26 = $24

Now, using this contribution margin per unit, we can calculate the total contribution margin for 5,700 units:

Total contribution margin = 5,700 units × $24 per unit = $136,800

Finally, deducting the fixed expenses of $114,100 from the total contribution margin, we get the net operating income:

Net operating income = Total contribution margin – Fixed expenses 
Net operating income = $136,800 – $114,100 = $22,700

Therefore, the closest net operating income for 5,700 units sold is $22,700, which is option B.

Grisham Corporation Produces and Sells a Single Product