Answer:
The correct answer to the following question is option C) $1800.
Explanation:
Given information -
Product sales - 1000 units
Sales price - $10
Variable manufacturing cost - $5.50 per unit
Fixed manufacturing overhead - $1200
Variable selling and administrative costs - $.50 per unit
Fixed selling and administrative cost - $1000
Units produced - 1200 units
Manufacturing contribution per unit = Sales price per unit - Variable
manufacturing cost per unit
= $10 -$5.50
= $4.50
Manufacturing contribution margin -
Number of units sold x manufacturing contribution per unit
= 1000 x $4.50
= $4500
While the contribution margin per unit -
$4.50 - $.50
= $4
which means the total contribution margin would be 1000 x $4
= $4000
And now subtracting Fixed manufacturing overhead and Fixed selling and administrative costs from the total contribution margin to get the operating income -
$4000 - $1200 - $1000
= $1800
