It costs Homer's Manufacturing to produce baseballs and Homer sells them for a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays a month rent for his factory and store, and also pays a month to his staff in addition to the commissions. Homer sold baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his operating income?

$105,075

Explanation:

The computation of the operating income is shown below:

Sales (4 × 69,500)                                              $278,000

Less:Variable costs (0.95 × 69,500 + 5% × 278,000)  $79,925

Contribution margin                                                     $198,075

Less: fixed cost (13,000 + 80,000)                      $93,000

Net operating income                                                 $105,075

We simply deduct the variable cost and the fixed cost from the sales to arrive at the net operating income

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