Answer:
B) $480,000
Explanation:
In this question we compare the operating income
In the first case,
The operating income is
= Contribution margin - fixed cost
where,
= (Selling price per unit - Variable cost per unit) × Expected sales units per year
= ($100 - $45) × 20,000 units
= $1,100,000
And, the fixed cost is $420,000
So, the operating income is
= $1,100,000 - $420,000
= $680,000
In the second case,
The operating income is
= Contribution margin - fixed cost
where,
= (Selling price per unit - Variable cost per unit) × Expected sales units per year
= ($100 - $45) × 20,000 units
= $1,100,000
And, the fixed cost is $420,000 + $200,000 = $620,000
So, the operating income is
= $1,100,000 - $620,000
= $480,000
