A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs were 40% of sales, and sales were $1,000,000. Operating profit was

A) $180,000
B) $420,000
C) $1,080,000
D) $980,000

Question

Mackenzie Fezza · Accepted Answer

Final Answer : A, Explanation :  First, we need to find the total variable cost:Total variable cost = 40% of $1,000,000Total variable cost = $400,000Next, we can find the contribution margin:Contribution margin = Sales - Total variable costContribution margin = $1,000,000 - $400,000Contribution margin = $600,000Now we can calculate the break-even point:Break-even point = Fixed costs / Contribution marginBreak-even point = $420,000 / $600,000Break-even point = 0.7 or 70%Since the firm operated at 90% of capacity, their sales were above the break-even point. We can use the following formula to calculate operating profit:Operating profit = (Sales - Total variable cost) - Fixed costsOperating profit = ($1,000,000 - $400,000) - $420,000Operating profit = $180,000Therefore, the answer is A) $180,000.

A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs were 40% of sales, and sales were $1,000,000. Operating profit was

A) $180,000
B) $420,000
C) $1,080,000
D) $980,000

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A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs were 40% of sales, and sales were $1,000,000. Operating profit wasA) $180,000B) $420,000C) $1,080,000D) $980,000

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Learning Objectives

Learning Objectives

Related questions

A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs were 40% of sales, and sales were $1,000,000. Operating profit was

A) $180,000
B) $420,000
C) $1,080,000
D) $980,000