A firm operated at 80% of capacity for the past year, during which fixed costs were $330,000, variable costs were 70% of sales, and sales were $1,000,000. Operating profit (loss) was
A) $140,000
B) $(30,000)
C) $370,000
D) $670,000

Question

Quizplus · Accepted Answer

First, calculate the total variable costs:

Variable costs = 70% x $1,000,000 = $700,000

Next, calculate the contribution margin:

Contribution margin = Sales - Variable costs = $1,000,000 - $700,000 = $300,000

Then, calculate the breakeven point:

Breakeven point = Fixed costs / Contribution margin = $330,000 / $300,000 = 1.1

This means that the company needs to generate $1.1 million in sales to break even. Since actual sales were only $1 million, the company operated at a loss.

Operating loss = Sales - Variable costs - Fixed costs = $1,000,000 - $700,000 - $330,000 = -$30,000

Therefore, the answer is B) $(30,000).

A Firm Operated at 80% of Capacity for the Past