A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $100. The new production line would manufacture up to 42,000 units at a variable cost of $67 per unit. Fixed costs would be $580,000. Variable selling and administration expenses would amount to $12. Determine operating income at 80% of capacity.

Question

Quizplus · Accepted Answer

Operating income is calculated as (Selling Price - Variable Cost - Variable Selling Expenses) * Units Sold - Fixed Costs. At 80% capacity, 33,600 units are produced and sold. Operating income = ($100 - $67 - $12) * 33,600 - $580,000 = $126,500.

A Manufacturing Company Is Studying the Feasibility of Producing a New