Question

The Hoops Corporation manufactures and sells hula hoops. The following data is related to sales and production of the hula hoops for last year.

Selling price per unit $8.20
Variable manufacturing costs per unit $1.87
Variable selling and administrative expenses per unit $4.85
Fixed manufacturing overhead (in total) $77,000
Fixed selling and administrative expenses (in total) $83,000
Units produced during the year 500,000
Units sold during year 190,000
Using variable costing, what is the operating income for last year?
A. $281,200
B. $121,200
C. $441,200
D. $1,558,000

Answer 1

The firm's accounting profit is calculated by subtracting total costs from sales revenue. With a sales revenue of $1 million and costs of $950,000 for labor, capital, and materials, the firm's accounting profit last year was $50,000.

Step-by-step explanation:

To calculate the accounting profit for the firm, we need to subtract the total costs from the total sales revenue. The firm had sales revenue of $1 million last year. The total costs include the sum of labor, capital, and materials, which are $600,000, $150,000, and $200,000 respectively.

Adding together the costs for labor, capital, and materials:

• Labor: $600,000
• Capital: $150,000
• Materials: $200,000

Total costs = Labor + Capital + Materials = $600,000 + $150,000 + $200,000 = $950,000.

Now, we subtract the total costs from the sales revenue to find the accounting profit:

Sales Revenue - Total Costs = $1,000,000 - $950,000 = $50,000.

The firm's accounting profit last year was $50,000.