Question

Briar company manufactures and sells dresses at a variable cost of $18 each and a fixed cost of x. It can sell 6800 dresses at a selling price of $56 to earn an operating income of $148400 (Option 1) or it can sell 4300 dresses at a selling price of $70 and another 3300 dresses at a selling price of $60 (option 2). Which alternative should Briar Choose.

Option 1 Operating Incom:

Option 2 Operating Income:

Briar Should Choose: Option 1, Option 2, neither

Answer 1

	Option 1
	Sales Revenue		$ 3,80,800.00	(6800 x $ 56)
Less:	Variable cost		$ 1,22,400.00	(6800 x $ 18)
	Contribution Margin		$ 2,58,400.00
Less:	Fixed cost		$ 1,10,000.00	(balancing figure)
	Operating income		$ 1,48,400.00
	Option 2
	Sales Revenue		$ 4,99,000.00	[(4300 x $ 70) + (3300 x $ 60)]
Less:	Variable cost		$ 1,36,800.00	(7600 x $ 18)
	Contribution Margin		$ 3,62,200.00
Less:	Fixed cost		$ 1,10,000.00	(stays same as option 1)
	Operating income		$ 2,52,200.00

Therefore, Briar should choose Option 2

Note: If you find this incorrect, please let me know. Thank you