Sandy Corporation has provided the following cost data for last year when 50,000

Question

Sandy Corporation has provided the following cost data for last year when 50,000 units were produced and sold:

Raw materials

$200,000

Direct labor

100,000

Manufacturing overhead

200,000

Selling and administrative expense

150,000

All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expense.

If the selling price is $10 per unit, the net operating income from producing and selling 120,000 units would be:

Select one:

A. $460,000

B. $ 80,000

C. $ 85,000

D. $105,000

Raw materials

$200,000

Direct labor

100,000

Manufacturing overhead

200,000

Selling and administrative expense

150,000

Explanation / Answer

NOTE:Total fixed cost and variable cost/unit do not change with change in units.

Total variable cost=(200,000+100,000+(200,000-100,000)+(150,000-100,000))=$450000

Hence VC/unit=($450,000/50000)=$9

Fixed cost=(100,000+100,000)=$200,000

At 120,000 units;net operating income=Sales-Variable cost-Fixed cost

=120,000*(10-9)-$200,000

which is equal to

=($80000)(Negative).

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