Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure: In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for $120 each.
-How would Eagle's variable costing net operating income have been affected in its first year if only 9,000 tables were sold instead of 10,000?
A)net operating income would have been $37,100 lower
B)net operating income would have been $45,800 lower
C)net operating income would have been $56,000 lower
D)net operating income would have been $62,000 lower

Question

Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure: In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for $120 each.
-How would Eagle's variable costing net operating income have been affected in its first year if only 9,000 tables were sold instead of 10,000?
A)net operating income would have been $37,100 lower 
B)net operating income would have been $45,800 lower 
C)net operating income would have been $56,000 lower 
D)net operating income would have been $62,000 lower

Quizplus · Accepted Answer

Unit CM = Selling price per unit - Variable expenses per unit
= $120 per unit - ($58 per unit + $6 per unit)= $120 per unit - $64 per unit = $56 per unit
Change in contribution margin = Unit CM ratio F1F1F1S1F1F1F10 Change in unit sales
= $56 per unit F1F1F1S1F1F1F10 1,000 units = $56,000
Since fixed expenses would not be affected by this change in unit sales,the change in contribution margin would drop directly to the bottom line,decreasing net operating income by $56,000.

Eagle Corporation Manufactures a Picnic Table