Question

If the selling price per unit of a product is P30, variable costs per unit are P20, and total fixed costs are P10,000 and a company sells 5,000 units, operating income would be

Answer 1

Operating income is the income derived directly from operation .In case of manufaturing concern, the operating income could be obtained after deducting operating expenses from sale of such goods. So, expenses incurred in manufacturing are material,labour and overhead. Overhead are of two types variable and fixed overhead. Variable overhead are fixed per unit and vary in total whereas fixed overhead are fixed in total and vary per unit term.

The calculation of operating income is as follows:

	units	price Per unit	Total Price
Sale	5000	30	150000
Less :Variable Cost	5000	20	100000
Contribution	5000	10	50000
less :Total fixed Cost	5000	2	10000
Operating income	5000	8	40000