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29 September, 12:32

Salt Corporation's contribution margin ratio is 75% and its fixed monthly expenses are $55,000. Assume that the company's sales for May are expected to be $114,000. Required: Estimate the company's net operating income for May, assuming that the fixed monthly expenses do not change.

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  1. 29 September, 12:57
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    The company's net operating income for May is $30,500

    Explanation:

    For computing the net operating income, first, we have to compute the contribution by applying the contribution margin formula. The formula is shown below:

    Contribution margin = (Contribution : Sales)

    75% = (Contribution : $114,000)

    So contribution would be equal to

    = $114,000 * 75%

    = $85,500

    And the fixed expenses are $55,000

    So, the net operating income equal to

    = Contribution - fixed expenses

    = $85,500 - $55,000

    = $30,500
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