Question

The following information is for Clayton Corp:

               Product X: Revenue                                         $12.00

                       Variable Cost                                               $4.50

               Product Y: Revenue                                         $25.00

                       Variable Cost                                             $10.00

               Total fixed costs                                             $40,500

What is the operating income, assuming actual sales total 120,000 units, and the sales mix is two units of Product X and one unit of Product Y?

Answer 1

	Product X	Product Y	Overall Company
Sales Units (120,000 units*2/3); (120,000*1/3)	80,000	40,000	120,000
Sales Revenue (80,000 * $12); (40,000 * $25)	$960,000	$1,000,000	$1,960,000
Less: Variable Costs (80,000 * $4.50); (40,000 * $10)	($360,000)	($400,000)	($760,000)
Contribution Margin	$600,000	$600,000	$1,200,000
Less: Fixed Costs			($40,500)
Operating Income			$1,159,500
Therefore, operating income is $1,159,500.