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Sarratt Corporation's contribution margin ratio is 78% and its fixed monthly expenses are $30,000. Assume that the company's sales for May are expected to be $89,000. Required: Estimate the company's net operating income for May, assuming that the fixed monthly expenses do not change.

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Answer:

The company's net operating income for May is $39,420

Explanation:

Sales revenue = $89,000

Variable costs = $89,000 × (1 - 78%)

= $89,000 × 0.22

= $19,580

Fixed costs = $30,000

Therefore, net operating income = Sales revenue - variable costs - fixed costs

= $89,000 - $19,580 - $30,000

= $ 39,420

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