A manufacturing company is studying the feasibility of producing a new product. The selling price is expected to be $56. The new production line would manufacture up to 95,000 units at a variable cost of $35 per unit. Fixed costs would be $400,000. Variable selling and administration expenses would amount to $7. Determine operating income at 95% capacity.

Question

Quizplus · Accepted Answer

Operating income at 95% capacity = (Selling price - Variable cost per unit - Variable selling and admin expenses) * Units at 95% capacity - Fixed costs. Units at 95% capacity = 95,000 * 95% = 90,250. Operating income = ($56 - $35 - $7) * 90,250 - $400,000 = $14 * 90,250 - $400,000 = $1,263,500 - $400,000 = $863,500.

A Manufacturing Company Is Studying the Feasibility of Producing a New