Question

Income of $190,000

New Fixed Costs: $720,000
New Selling Price: $0.40
New Variable Cost: $0.27
New Units Sold: 7,000,000

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

[7,000,000 x ($0.40 - $0.27)] - $720,000 = $190,000

Answer 1

The operating income, calculated using the given formula, is $190,000.

Step-by-step explanation:

The operating income is determined by the formula:
`\[ \text{Operating Income} = (Q * (SP - VC)) - FC \]`

Where:

- Q is the quantity of units sold,

- SP is the selling price per unit,

- VC is the variable cost per unit, and

- FC is the fixed cost.

Given the information:

-
`\( Q = 7,000,000 \)`units,

-
`\( SP = $0.40 \)` per unit,

-
`\( VC = $0.27 \)` per unit, and

-
`\( FC = $720,000 \).`

Substituting these values into the formula, we get:

`\[ \text{Operating Income} = (7,000,000 * ($0.40 - $0.27)) - $720,000 \]`

Solving the expression within the parentheses:

`\[ = (7,000,000 * $0.13) - $720,000 \]`

Multiplying and subtracting further:

`\[ = $910,000 - $720,000 \]`

Finally:

`\[ = $190,000 \]`

Thus, the operating income is $190,000. This means that after considering the new fixed costs, selling price, variable costs, and units sold, the business is left with an operating income of $190,000. This figure is crucial for assessing the financial health and profitability of the business in light of the changes made.