Managerial Accounting

EX:5-1 Solution

Income Statement

Sales Revenue (8000 units) $26 $208,000

Less: Variable expenses $18 $144,000

Contribution Margin $8 $64,000

Less: Fixed Expenses 56,000

Net Operating Income $8,000

a) Sales increased by 50 units

Change in NOI = Change in CM = 50 x $8 = $40
NOI ​= $8000 + $40 = ​$8040

b) Sales decreased by 50 units

Change in NOI = Change in CM = 50 x $8 = $40
NOI ​= $8000 - $40 = ​$7,960

c) Sales volume is 7000 units

Change in NOI = Change in CM = 1000 x $8 = $8000
NOI ​= $8000 - $8000 = ​$0
EX:5-4 Solution

Sold 40,000 units, total sales were $300,000, total variable expenses were $240,000,
and fixed expenses were $45,000.

Q= 40,000 units, Fixed expense= $45,000

Sales = $300,000 , Unit sales price= $7.5
Total variable expenses = $240,000 , Unit variable expense= $6

1) Contribution margin = Sales - Total varaiable expense = $300,000 - $240,000

CM = $60,000

2) Sales increased by $1500 (i.e: increase by 200 units)

Change in NOI​ = Change in CM = Change in sales - Change in TVE
= $1500 - 200x $6 = ​$300

EX:5-5 Solution
Fixed expenses are $75,000 per month.
The company is selling 3,000 units per month.

1) The marketing manager believes that an $8,000 increase in the monthly

advertising budget would increase monthly sales by $15,000. Should the
advertising budget be increased?

Change in NOI​ = Change in CM - Change in fixed expenses

= 200 x $30 - $8000 = ​- $2000

Since NOI will be decreased by $2000, therefore the advertising budget shouldn’t be
increased.

2) Management is considering using higher-quality components that would increase

the variable cost by $3 per unit. The marketing manager believes that the
higher-quality product would increase sales by 15% per month. Should the
higher-quality components be used?

Change in NOI​ = Change in CM = Change in sales - Change in variable expenses

= $75 x 450 - $3 x 450 = ​$32,400

Since NOI will be increased by $32400, therefore the higher-quality components should
be used.