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Chapter 2: 14BP_b (page 148)

International Data Systems’ information on revenue and costs is relevant only up to a sales volume of 105,000 units. After 105,000 units, the market becomes saturated and the price per unit falls from \(14.00 to \)8.80. Also, there are cost overruns at a production volume of over 105,000 units, and variable cost per unit goes up from \(7.00 to \)8.00. Fixed costs remain the same at $55,000.

b. Compute operating income at 205,000 units.

Short Answer

Expert verified

The Operating income of the company is $29,000.

Step by step solution

01

Contribution per unit

Contribution=Revenueperunit-Variablecostperunit=$8.80-$8=$0.80

02

Operating income

Operatingincome=Contribution×No.ofunits-Fixedcost=$0.80×105,000-$55,000=$29,000

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Most popular questions from this chapter

The Rogers Corporation has a gross profit of \(880,000 and \)360,000 in depreciation expense. The Evans Corporation also has \(880,000 in gross profit,

with \)60,000 in depreciation expense. Selling and administrative expense is $120,000 for each company. Given that the tax rate is 40 percent, compute the cash flow for both companies.

Explain the difference in cash flow between the two firms.

How is the income statement related to the balance sheet?

Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inflation on the following ratios, and explain the direction of the impact based on your assumptions.

b. Inventory turnover

Explain why the statement of cash flows provides useful information that goes beyond income statement and balance sheet data.

Is there any validity in rule-of-thumb ratios for all corporations, such asa current ratio of 2 to 1 or debt to assets of 50 percent?
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