Question

A firm operated at 80% of capacity for the past year, during which fixed costs were $330,000, variable costs were 70% of sales, and sales were $1,000,000. operating profit (loss) was
a. $670,000


b. $370,000


c. $140,000


d. $(30,000)

Answer 1

Answer:

d. $(30,000)

Explanation:

By the CVP method, operating income is obtained by subtracting fixed costs from the total contribution margin.

Total contribution margin equal total units multiplied contribution margin per unit, which is the same as sales minus total variable cost.

variable costs are 70%  of sales

=70/100 x1,000,000

=$700,0000

Total contribution margin = total sales - total variable

=$1,000,000 - $700,000

=$300,000

Operating income = total contribution margin - fixed costs

=$300,000-$330,000

=($30,0000 )

Loss of $30,000