Calculation Of Net Operating Income

Question

The Rial Company's income statement for June is given below:

 

Total

Division F

Division L

Sales

$476,000

$296,000

$180,000

Variable expenses

204,960

150,960

54,000

Contribution margin

271,040

145,040

126,000

Traceable fixed expenses

138,600

64,800

73,800

Segment margin

132,440

$80,240

$52,200

Common fixed expenses

44,600

   

Net operating income

$87,840

   

A proposal has been made that will lower variable expenses in Division L to 25% of sales. However, this reduction can only be accomplished by a $22,800 increase in Division L's traceable fixed expenses. If this proposal is implemented and if sales remain constant, overall company net operating income should:

a. increase by $22,800

b. increase by $31,800

c. decrease by $13,800

d. decrease by $22,800

 

Summary

The question belongs to Accounting and it discusses about calculation of net operating income.

Total Word Count 48

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