Question

Sound Design sells its computer speakers for $135 per set. Its variable cost is $85 per set of speakers. Fixed costs are $85,000 per month for volumes up to 2600 sets of speakers. Above 2600 sets, monthly fixed costs are $126,000. What is the budgeted operating income (loss) at a sales level of 2200 sets of speakers per month?

Answer 1

$25,000

Step-by-step explanation:

The formula to calculate operating income/(loss) is ;

Operating income/(loss)=Number of units x (sales price - variable cost) - fixed cost

Since the information below are given;

Number of sets/units= 2,200

Sales price= $135

Variable cost= $85

Fixed cost is $85,000 at a level of 2,200units.

Note: We will ignore the monthly fixed cost of $126,00 at 2,600 sets because it is greater than fixed cost of $85,000 at a level of 2,200 sets .

Therefore;

Operating income/(loss) =Number of units x (Sales price - Variable cost)

- Fixed cost

=2,200 x ($135 - $85) - $85,000

= $110,000 - $85,000

=$25,000

Therefore, the budgeted operating income/(loss) at a sales level of 2,200 sets is $25,000.