Question

International Data Systems' information on revenue and costs is relevant only up to a sales volume of 119,000 units. After 119,000 units, the market becomes saturated and the price per unit falls from $6.00 to $4.80. Also, there are cost overruns at a production volume of over 119,000 units, and variable cost per unit goes up from $3.00 to $3.20. Fixed costs remain the same at $69,000.

Compute operating income at 119,000 units.

Answer 1

The operating income for International Data Systems at 119,000 units sold is $288,000, calculated by subtracting both the total variable costs ($357,000) and fixed costs ($69,000) from the total revenue ($714,000).

Step-by-step explanation:

To compute the operating income at 119,000 units for International Data Systems, we need to use the information provided for sales volume below the saturation point. The price per unit before reaching 119,000 units is $6.00 and the variable cost per unit is $3.00, with fixed costs remaining constant at $69,000.

First, we calculate the total revenue by multiplying the price per unit by the number of units sold, yielding:
Total Revenue = 119,000 units * $6.00/unit = $714,000.

Then, we calculate the total variable costs by multiplying the variable cost per unit by the number of units:
Total Variable Costs = 119,000 units * $3.00/unit = $357,000.

The fixed costs are given as $69,000 and do not change with the number of units produced. Therefore, the operating income can be calculated by subtracting the total variable costs and fixed costs from the total revenue:
Operating Income = Total Revenue - Total Variable Costs - Fixed Costs = $714,000 - $357,000 - $69,000 = $288,000.

Based on these calculations, the operating income at 119,000 units is $288,000.