Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow:
-If Buffo expects to produce and sell 5,000 units next month, the expected net operating income would be:
A) $51,250
B) $42,750
C) $71,000
D) $62,500

Question

Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow: 
-If Buffo expects to produce and sell 5,000 units next month, the expected net operating income would be:
A) $51,250 
B) $42,750 
C) $71,000 
D) $62,500

Quizplus · Accepted Answer

To calculate the expected net operating income, we need to calculate the total revenue and total costs.

Total revenue:
5000 units x $25 per unit = $125,000

Total costs:
Variable cost per unit:
Direct materials per unit + Direct labor per unit + Variable overhead per unit
($7 + $8 + $3) = $18 per unit

Fixed costs:
Total fixed costs = Fixed manufacturing costs + Fixed selling and administrative costs
($40,000 + $22,000) = $62,000

Total costs:
Variable cost per unit x Number of units + Total fixed costs
($18 x 5000) + $62,000 = $152,000

Expected net operating income:
Total revenue - Total costs
$125,000 - $152,000 = -$27,000

Since the net operating income is negative, we can eliminate choices A, C, and D.

Therefore, the correct answer is B, $42,750.

Buffo Company Fabricates Metal Folding Chairs