International Data Systems\' information on revenue and costs is relevant only u

Question

International Data Systems' information on revenue and costs is relevant only up to a sales volun 103,000 units. After 103,000 units, the market becomes saturated and the price per unit falls frorm $10.00 to $6.80. Also, there are cost overruns at a production volume of over 103,000 units, and variable cost per unit goes up from $5.00 to $5.25. Fixed costs remain the same at $53,000. a. Compute operating income at 103,000 units. Operating income b. Compute operating income at 203,000 units. Operating income

Explanation / Answer

Calculation of operating income at 103000 units Particulars Calculation Amount in $ Sales 103000*10 1030000 Less: Variable costs 103000*5 515000 Contribution 1030000 - 515000 515000 Less: Fixed costs 53000 Operating Income 515000 - 53000 462000 Calculation of operating income at 203000 units Particulars Calculation Amount in $ Sales 203000*6.8 1380400 Less: Variable costs 203000*5.25 1065750 Contribution 1380400 - 1065750 314650 Less: Fixed costs 53000 Operating Income 314650 - 53000 261650

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