Finestra Corporation produces a single product that it currently sells for $10. Fixed expenses are $120,000 for the year and variable expenses are $6 per unit. In addition, Finestra's salespersons are paid a commission of 10% of their sales.
-If Finestra spends an additional $10,000 on advertising, increases its selling price to $12 per unit, and sells 60,000 units, its net operating income would be:

Question

Quizplus · Accepted Answer

Explanation:The correct answer is A: $158,000.To calculate the net operating income, we need to subtract the total expenses from the total revenue.Total revenue = Selling price per unit * Number of units soldTotal revenue = $12 * 60,000 = $720,000Total expenses = Fixed expenses + Variable expenses + Commission expensesVariable expenses = Variable expenses per unit * Number of units soldVariable expenses = $6 * 60,000 = $360,000Commission expenses = Commission rate * Total revenueCommission expenses = 10% * $720,000 = $72,000Total expenses = $120,000 + $360,000 + $72,000 + $10,000 = $562,000Net operating income = Total revenue - Total expensesNet operating income = $720,000 - $562,000 = $158,000

Finestra Corporation Produces a Single Product That It Currently Sells