[mlauni]

Last month when Holiday Creations, Inc. sold 50,000 units, total sales were $200,000, total variable expenses were $120,000, and fixed expenses were $65,000.

If the sale increases by $1000.

What is the change in the net operating income?

Do I need to find the units first? Or just add $1000?
Am I suppose to subtract the old NOI from the new one?
my homework program keeps saying I'm getting it wrong HELP!

[Just Looking]

The lesson here is the difference between fixed and variable costs. Fixed costs are those that do not change with changes in production level. An example would be rent expense. Variable costs are those costs that change directly or proportionately to changes in activity level. An example would be material costs.

You can do this problem one of two ways. In your example, you can compute the sales price per unit as you have total sales and units sold. This will then tell you how many additional units were sold knowing you sold an additional $1000. You can also compute the variable cost per unit since you have the variable costs and the number of units. If you apply the variable cost per unit to the number of additional units sold, you know how much your variable costs increased. You know your fixed costs will not change. That means that the change in NOI is the difference between the $1000 additional sales and the amount you compute as additional variable costs for the new units.

You can also do it on a percentage basis. What % increase is $1,000 additional units to the $200,000? That same % increase will apply to the variable costs. Again, the $1,000 less the increase in variable will give you the change in NOI.