Exhibit 6-2
Victor Company makes a single product.The company has monthly fixed costs totaling $200,000 and variable costs of $20 per unit.Each unit of product is sold for $35.Brevard expects to sell 25,000 units each month.
-Refer to Exhibit 6-2.What would be the operating profit if total fixed costs decreases 20 percent?

Question

Quizplus · Accepted Answer

To calculate the operating profit, we need to use the formula:

Operating Profit = (Sales - Variable costs) - Fixed costs

Given that the monthly fixed costs are $200,000, if they decrease by 20%, they would be:

New Fixed costs = $200,000 x 0.8 = $160,000

The variable costs per unit are $20, and Brevard expects to sell 25,000 units each month, so the total variable costs would be:

Variable costs = $20 x 25,000 = $500,000

The total sales would be:

Sales = $35 x 25,000 = $875,000

Now we can calculate the operating profit:

Operating Profit = ($875,000 - $500,000) - $160,000 = $215,000

Therefore, the operating profit would be $215,000 if the total fixed costs decrease 20%. The correct answer is (C).

Exhibit 6-2 Victor Company Makes a Single Product.The Company Has Monthly Fixed