Marketing Dept. of ABC Corp has Estimated the no of Widgets that must be sold to
ID: 452633 • Letter: M
Question
Marketing Dept. of ABC Corp has Estimated the no of Widgets that must be sold to earn a Monthly Targeted Net Operating Income (NOI) of ABC Corp that produces Widgets, using the following information:
Financial Data for the Current Month
Selling Price = $40 per widget
No of Units Sold = 20,000.00 Widgets
Manufacturing cost =$25 per widget
Fixed Cost= $250,000
Monthly NOI Target= $75,000
Calculation of NOI For the Current Month
Sales Revenue = $800,000
- Manufacturing Cost= $500,000
- Fixed Cost = $250,000
NOI = $50,000
NOI per Widget = $50,000/20000= $2.50
Calculation For No of Widgets that Must be Sold For a Monthly Targeted NOI of $75,000:
Targeted NOI/NOI Per Widget = $75,000/$2.50= 30,000 Widgets
Is the Mktg Dept’s above calculated answer Right?
May be?
May be Not?
No
Yes
a.May be?
b.May be Not?
c.No
d.Yes
Explanation / Answer
ANSWER IS C.- NO NET OPERATING INCOME = GROSS INCOME - OPERATING EXPENSES IN THIS CASES No Widgets= 30,000 GROSS INCOME = $40 X 30000 = $1,200,000 OPERATING EXPENSES: MANUFACTURING COST = $25 x 30000= $750,000 FIXED COST= $250.000 NOI= 1,200,000 - (750,000+250,000) NOI = $200,000 VALUE OF NOI OBTAINED WITH 30,000 WIDGETS IS GREATER THAN $ 75,000 We can estimate the number of Widgets (X), as follows NOI = $75,000 GROSS INCOME = $40 (X) OPERATING EXPENSES: MANUFACTURING COST = $25 (X) FIXED COST= $250.000 THEN NET OPERATING INCOME = GROSS INCOME - OPERATING EXPENSES $75,000 = $40 (X) - ($25(X) + $250,000) $75,000 + $250,000 = $40 (X) - $25(X) $32.000= $15(X) the number of Widgets (X)= 21,667 Calculation of NOI For 21,667 Widgest GROSS INCOME = $40 X 21,667 = $866,680 OPERATING EXPENSES: MANUFACTURING COST = $25 x 21,667= $541,675 FIXED COST= $250.000 NOI= $866,680 - ($541,675+$250,000) NOI = $75005