Eagle Corporation manufactures a picnic table. Shown below is Eagle\'s cost stru
ID: 2453576 • Letter: E
Question
Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure:
In its first year of operations, Eagle produced and sold 11,000 tables. The tables sold for $191 each.
How would Eagle's variable costing net operating income have been affected in its first year if only 9,760 tables were sold instead of 11,000?
net operating income would have been $88,660 lower
net operating income would have been $80,600 lower
net operating income would have been $59,520 lower
net operating income would have been $86,600 lower
Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure:
Explanation / Answer
On saleof 11,000 tables
Selling price per unit $ 191
less : Variable Manufacturing cost $ 117
Variable Selling and Administrative cost $ 9
---------- $ 126
----------
contribution margin per unit $ 65
-----------
No of units sold 11000
Total contribution Margin $715000
----------------
On sale of 9,760 units of tables,
Contribution margin - $65 x 9760 units $6,34,400
Loss of contribution being loss of operating income $ 80,600
Fixed cost need not be considered since on reduction of sale,the same amount of fixed cost would only be incurred.
The answer is,therefore, net operating income would have been $80,600 lower
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