Question

For the coming year, Loudermilk Inc. anticipates fixed costs of $600,000, a unit variable cost of $75, and a unit selling price of $125. The maximum sales within the relevant range are $2,500,000. a. Determine the maximum possible operating loss. $fill in the blank 1 b. Compute the maximum possible operating profit. $fill in the blank 2

Answer 1

Answer and Explanation:

The computation is shown below:

1.

If the Sale is $0, so the Variable Cost will be $0 and Fixed Cost will be $600,000

As we know that

Operating Profit = Sales - Variable Expenses - Fixed Cost

Operating Profit = -$600,000

2.

Operating Profit = Sales - Variable Expenses - Fixed Cost

where,

Unit sold is

= ($2,500,000 ÷ $125)

= 20,000 units

And, the variable cost is

= $75 × 20,000

= $1,500,000

So,

Operating Profit is

= $2,500,000 - $1,500,000 - $600,000

= $400,000