Question

Graduating Tiger, Inc has the following costs: Total variable expenses are $42,000, total fixed expenses are $28,000, and sales revenue to breakeven is $35,000. What is current operating income?

Group of answer choices

$140,000

$7,000

$210,000

$28,000

Answer 1

Break even sales = $35,000

Fixed expense = $28,000

Break even sales = Fixed expense/Contribution margin ratio

35,000 = 28,000/Contribution margin ratio

Contribution margin ratio = 80%

Total variable expense = $42,000

Since contribution margin is 80%, hence variable expense must be 20% of sales.

total variable expense = sales x 20%

42,000 = Sales x 0.2

Sales = $210,000

Income Statement
Sales	210,000
Variable expense	-42,000
Contribution margin	168,000
Fixed expense	-28,000
Operating income	$140,000

Current operating income is $140,000.

First option is correct.

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