Question

Savannah Company sells glass vases at a wholesale price of $5 per unit. The variable cost of manufacture is $2.50 per unit. The fixed costs are $6,200 per month. It sold 5,700 units during this month. Calculate Savannah's operating income (loss) for this month.

A) $22,300
B) $8,050
C) ($8,050)
D) ($6,200)

Answer 1

Savannah's operating income for the month is calculated by subtracting total variable and fixed costs from the total revenue, resulting in an operating income of $8,050.

Step-by-step explanation:

To calculate Savannah's operating income for this month, determine the total revenue earned and subtract both variable and fixed costs. The total revenue generated from selling 5,700 units at $5 per unit is $28,500 (5700 units * $5/unit). The total variable costs for producing the units are $14,250 (5700 units * $2.50/unit). Subtracting the total variable costs from the total revenue gives us the contribution margin, which is $14,250. Finally, we subtract the fixed costs of $6,200 from the contribution margin to find the operating income. Therefore, Savannah's operating income for the month is $8,050 (Total Revenue - Total Variable Costs - Fixed Costs).

Savannah Company's operating income for the month can be calculated as follows:

Total revenue = Wholesale price per unit x Number of units sold = $5 x 5,700 = $28,500

Total variable cost = Variable cost per unit x Number of units sold = $2.50 x 5,700 = $14,250

Total cost = Fixed costs + Total variable cost = $6,200 + $14,250 = $20,450

Operating income (loss) = Total revenue - Total cost = $28,500 - $20,450 = $8,050

Therefore, Savannah Company's operating income for the month is $8,050. Option B is the correct answer.