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Murie Corporation makes one product and has provided the following information: Budgeted selling price per unit $ 98 per unit sold Budgeted unit sales, February 11,000 units Raw materials requirement per unit of output 5 pounds Raw materials cost $ 3.00 per pound Direct labor requirement per unit of output 2.5 direct labor-hours Direct labor wage rate $ 18.00 per direct labor-hour Predetermined overhead rate (all variable) $ 11.00 per direct labor-hour Variable selling and administrative expense $ 2.70 per unit sold Fixed selling and administrative expense $ 80,000 per month The estimated net operating income (loss) for February is closest to:

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Answer:

Net operating income= $5,800

Explanation:

Giving the following information:

Selling price= $98 per unit

Sales= 11,000 units

Variable cost per unit= (5*3) + (2.5*18) + (2.5*11) + 2.7= $90.2

Fixed selling and administrative expense $ 80,000 per month

Contribution margin income statement:

Sales= 98*11,000= 1,078,000

Total variable cost= (90.2*11,000)= (992,200)

Contribution margin= 85,800

Fixed costs= (80,000)

Net operating income= 5,800

The estimated Net operating income for February should be considered as the $5,800.

Giving that:

  • Selling price per unit is $98.
  • Sales in February is 11,000 units.
  • Fixed selling and administrative expense per month is $80,000.

Calculation of the estimated net operating income;

Variable cost / unit =  ( 5 [tex]\times[/tex] 3 ) + ( 2.5 [tex]\times[/tex] 18 ) + ( 2.5 [tex]\times[/tex] 11 ) + 2.7

= $90.2

Now, we calculate contribution margin,

Total Sales value = $98 [tex]\times[/tex] 11,000 =  $1,078,000

Total variable cost = $90.2 * 11,000 = $992,200

Contribution margin = Total Sales value - Total variable cost

= $1,078,000 - $992,200

= $85,800

Now, we can calculate net operating income by using following formula,

Net operating income = Contribution margin - Fixed selling and administrative expense

Net operating income = $85,800 - $80,000

Net operating income= 5,800

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