Question

Income of $110,000

New Units Sold: 5,500,000
New Fixed Cost: $990,000

[Units sold x (Selling Price - Variable Costs)] - Fixed Costs = Operating Income

[5,500,000 x ($0.50 - $0.30)] - $990,000 = $110,000

Answer 1

The question pertains to calculating operating income in a business scenario, using a formula that involves subtracting the sum of variable and fixed costs from total revenues. The provided example illustrates a loss scenario when fixed costs are taken into account.

Step-by-step explanation:

The question involves the computation of operating income using a given formula in a business context. The formula for operating income is given as:

[Units sold x (Selling Price - Variable Costs)] - Fixed Costs = Operating Income

Using the example provided, the calculation would follow this pattern:

[5,500,000 x ($0.50 - $0.30)] - $990,000 = $110,000

This would be comparable to another provided scenario where the calculation is:

profit = total revenue - (fixed costs + variable cost) = $20,000 - ($10,000 + $15,000) = -$5,000

Here, despite revenues of $20,000 and variable costs of $15,000, after accounting for fixed costs, the center is actually operating at a loss of $5,000, suggesting a reevaluation of its business strategy.