A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs were 40% of sales, and sales were $1,000,000. Operating income was

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Quizplus · Accepted Answer

Operating income is calculated as sales minus total costs (fixed costs + variable costs). Here, sales = $1,000,000, fixed costs = $420,000, and variable costs = 40% of sales = 0.4 * $1,000,000 = $400,000. Total costs = $420,000 (fixed) + $400,000 (variable) = $820,000. Thus, operating income = sales - total costs = $1,000,000 - $820,000 = $180,000.

A Firm Operated at 90% of Capacity for the Past