A firm operated at 80% of capacity for the past year, during which fixed costs were $210,000, variable costs were 70% of sales, and sales were $1,000,000. Operating profit was:
A) $90,000
B) $210,000
C) $590,000
D) $490,000

Question

Quizplus · Accepted Answer

Operating profit is calculated as sales minus total costs (fixed and variable). Variable costs are 70% of sales, so they are $700,000 (70% of $1,000,000). Total costs are $700,000 (variable) + $210,000 (fixed) = $910,000. Operating profit is $1,000,000 (sales) - $910,000 (total costs) = $90,000.

A Firm Operated at 80% of Capacity for the Past