Question

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: Group of answer choices $90,000 $210,000 $590,000 $490,000 Flag this Question Question 3

Answer 1

Answer:

The answer is: $90,000

Explanation:

We must first determine the cost of goods sold:

• COGS = variable costs = 70% x 1,000,000

• COGS = $700,000

I will assume all fixed costs are operating expenses.

Then we elaborate a simple income statement:

Sales                           $1,000,000

COGS                           ($700,000)  

Gross profit                   $300,000

Operating expenses    ($210,000)    

Operating profit             $90,000