Question

Clay Earth Company sells ceramic pottery at a wholesale price of $ 6.00 per unit. The variable cost of manufacture is $ 3.00 per unit. The fixed costs are $ 7 comma 700 per month. It sold 4 comma 000 units during this month. Calculate Clay​ Earth's operating income​ (loss) for this month. A. ​($ 7 comma 700​) B. $ 4 comma 300 C. $ 16 comma 300 D. ​($ 4 comma 300​)

Answer 1

Correct answer is B, $4,300

Step-by-step explanation:

An operating income of $4,300 for this month is computed by deducting variable cost from sales to get the contribution margin. Afterwhich, we deduct the fixed cost from the contribution margin to get the operating income. To illustrate further, see computation below:

Sales (4,000 x $6) $24,000

Less: variable cost (4,000 x 3) $12,000

Contribution margin $12,000

Less: fixed cost $ 7,700

Operating income $ 4,300

Answer 2

Operating income $4300- option c

Step-by-step explanation:

Selling Price per Unit. $6

variable cost per unit. $3

Contribution per unit. $(6-3) = $3

total number of sold units = 4000, therefore

Total contribution = 3 x 4000= 12000

fixed costs. $7700 per month

Operating income (profit). = (Total contribution -fixed costs)

= (12000 - 7700) = $4300