2. The change in net operating income from an increase in total sales of
$1,000 can be estimated by using the CM ratio as follows:
Change in total sales ... $1,000
× CM ratio... 40 %
= Estimated change in net operat-
ing income ... $ 400
This computation can be verified as follows:
Total sales... $200,000
÷ Total units sold... 50,000 units
= Selling price per unit .... $4.00 per unit
Increase in total sales... $1,000
÷ Selling price per unit .... $4.00 per unit
= Increase in unit sales ... 250 units
Original total unit sales .... 50,000 units
New total unit sales... 50,250 units
Original New
Total unit sales ... 50,000 50,250
Sales... $200,000 $201,000
Less variable expenses .... 120,000 120,600
Contribution margin ... 80,000 80,400
Less fixed expenses... 65,000 65,000
Net operating income ... $ 15,000 $ 15,400
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