Question

Khan Corporation has budgeted the unit sales for April to be 5,000 units. The sales price is $25 per unit, and production costs are $10 per unit. Monthly utility expenses are estimated to be $2,000 plus $2 per unit, whereas selling expenses are estimated to be $12,000. The company pays a monthly rent of $2,000. What is the net operating income in the company's planning budget? a. $49,000 $b. 62,000 c. $125,000 d. $72,000

Answer 1

Answer: $49,000

Explanation: Net operating income is the income that a company left with after paying for fixed and variable expenses. It is sometimes denoted as EBIT, earnings before interest and tax.

EBIT = Sales - ( fixed expense + variable expenses )

sales = 5,000 * $25 = $125,000

variable expense = 5,000 *( $10 + $2 ) = $60,000

fixed expenses = $2000 + $12000 + $2000 = $16,000

so,

EBIT = $125,000 - ( $16,000 + $60,000 )

= $49,000