Carrie is currently a full-time employee at a law firm, and she also makes and sells jewelry online in her personal time. She is trying to evaluate her side business in terms of financial measures. The online shop has generated the following numbers on average per month: Sales, $4,316.00; Variable Costs, $1,809.00; and Fixed Costs, $762.00. Carrie sold 1,144 units per month. What is Carrie's annualized operating income if Carrie sold 1,200 units per month instead of her current monthly average? (Round intermediate calculations to two decimal places.)

Question

Quizplus · Accepted Answer

This question requires familiarity with the formula for operating income: sales - variable costs - fixed costs. First, recalculate the sales per unit and variable cost per unit, and recalculate the aggregates for each with the new unit quantity, 1,200. Sales per unit = $4,316/1,144 units = $3.77 per unit. Variable Costs per unit = $1,809/1,144 units = $1.58 per unit. Updated Sales = $3.77 × 1,200 units = $4,524.00. Updated Variable Costs = $1.58 × 1,200 units = $1,896.00. Operating income per month = $4,524.00 - $1,896.00 - $762.00 = $1,866.00. To finish, annualize the operating income by multiplying this value by 12: $1,866.00 × 12 = $22,392.00 (Choice B).

Carrie Is Currently a Full-Time Employee at a Law Firm