Question

A company operated at 82% of its capacity for the past year. fixed costs during this time were $126,000, variable costs were 60% of sales, and sales were $790,000. calculate the company's operating profit.

a. $175,000
b. $82,000
c. $155,800
d. $190,000

Answer 1

To calculate the operating profit, add the fixed costs to 60% of sales to get total costs, and then subtract those from the sales. The company's operating profit is $190,000.

Step-by-step explanation:

To calculate the company's operating profit, we need to first determine its total costs, which include both fixed costs and variable costs. The fixed costs are given as $126,000. To find the variable costs, we take 60% of sales, which is 0.60 × $790,000, resulting in $474,000. The total costs are therefore the sum of fixed and variable costs, which is $126,000 + $474,000 = $600,000.

With the total costs known, we can now calculate the operating profit by subtracting the total costs from sales. Operating profit = Sales - Total Costs = $790,000 - $600,000 = $190,000.

The final answer in two line explanation in 300 words: The company's total costs are $600,000, obtained by adding fixed costs of $126,000 to variable costs of $474,000 (60% of $790,000 sales). The operating profit is found by deducting total costs from sales, resulting in a profit of $190,000.