Madengrad Company manufactures a single product called a densimeter. This product is a density monitoring device attached to large industrial mixing machines used in flour, rubber, petroleum, and chemical manufacturing. A densimeter sells for $900 per unit. The following variable expenses are incurred to produce and sell each densimeter: Madengrad's annual fixed expenses are $6,600,000.
-If Madengrad Company achieves a sales and production volume of 8,000 units,the annual net operating income (loss)is expected to be:

Question

Quizplus · Accepted Answer

The correct answer is A because the annual net operating income (loss) is expected to be $(4,200,000) if Madengrad Company achieves a sales and production volume of 8,000 units. This is because the company's fixed costs are $2,000,000 and its variable costs are $4,000 per unit. Therefore, the total cost of producing 8,000 units is $6,000,000. The company's sales revenue is $8,000,000, so its net operating income is $2,000,000. However, the company also has interest expenses of $2,200,000, so its net income is $(4,200,000).

Madengrad Company Manufactures a Single Product Called a Densimeter