Question

International Data Systems' information on revenue and costs is relevant only up to a sales volume...

International Data Systems' information on revenue and costs is relevant only up to a sales volume of 108,000 units. After 108,000 units, the market becomes saturated and the price per unit falls from $20.00 to $11.80. Also, there are cost overruns at a production volume of over 108,000 units, and variable cost per unit goes up from $10.00 to $10.25. Fixed costs remain the same at $58,000.

a. Compute operating income at 108,000 units.

Operating income   

b. Compute operating income at 208,000 units.

Operating income   
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Answer #1
Ans a)
Unit sold 108000
Sales price
108000*20        2,160,000
Variable cost
108000*10        1,080,000
Fixed cost              58,000
Total cost        1,138,000
Operating income        1,022,000
Ans b)
Sales price
108000*20+100000*11.8 3340000
Variable cost
108000*10+100000*10.25 2105000
Fixed cost              58,000
Total cost        2,163,000
Operating income        1,177,000
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