Question

# A firm operated at 80% of capacity for the past year, during which fixed costs were...

A firm operated at 80% of capacity for the past year, during which fixed costs were \$196,000, variable costs were 61% of sales, and sales were \$912,000. Operating profit was

a.\$556,320

b.\$159,680

c.\$127,744

d.\$355,680

Spice Inc.'s unit selling price is \$50, the unit variable costs are \$32, fixed costs are \$101,000, and current sales are 9,900 units. How much will operating income change if sales increase by 5,500 units?

a.\$277,200 increase

b.\$178,200 decrease

c.\$99,000 increase

d.\$178,200 increase

If fixed costs are \$282,000, the unit selling price is \$70, and the unit variable costs are \$51, what are the old and new break-even sales (units) if the unit selling price increases by \$6?

a.5,529 units and 10,780 units

b.4,029 units and 14,842 units

c.14,842 units and 4,029 units

d.14,842 units and 11,280 units

1) Option b \$159,680

Working:

Variable cost= (912,000*61%) =\$556,320

Contribution margin=Sales-Variable cost

=912,000-556,320=\$355,680

Less: Fixed costs= (196,000)

Operating profit=\$159,680

2) Option C \$99,000 increase

Working:

 Current Proposed Unit sales 9900 (9900+5500)=15400 Sales (9900*50)=495,000 (15400*50)=\$770,000 Variable expenses (9900*32)=316,800 (15400*32)=\$492,800 Contribution margin 178,200 277,200 Fixed Costs 101,000 101,000 Operating income 77,200 176,200

Hence increase in Operating income= (176,200-77,200)=\$99,000

3) Option d 14,842 units and 11,280 units

Working:

Break-even sales (units) =fixed costs / selling price -variable costs

\$282,000/\$70-\$51=14,842 units

New break-even sales (units) = fixed costs / selling price -variable costs

\$282,000/\$76-\$51=11,280 units