14. International Data Systems information on revenue and costs is only relevant

Question

14.   International Data Systems information on revenue and costs is only relevant up to a sales volume of 105,000 units. After 105,000 units, the market becomes saturated and the price per unit falls from $14.00 to $8.80. Also, there are cost overruns at a production volume of over 105,000 units, and variable cost per unit goes up from $7.00 to $8.00. Fixed costs remain the same at $55,000.

Nonlinear breakeven analysis

(LO5-2)

a.   Compute operating income at 105,000 units.

b.   Compute operating income at 205,000 units.

Please show work.Step by step.

Explanation / Answer

a. At 105,000 Units :

Revenue = 105,000*14 = $1,470,000
Less : Variable cost = 105,000*7 = ($735,000)

Contribution : $735,000

Less : Fixed Cost : ($55,000)

Income: $680,000

b. At 205,000 Units :

Revenue = 105,000*14 = $1,470,000
100,000*8.80 = $880,000
Less : Variable cost = 105,000*7 = ($735,000)
100,000*8 = ($800,000)
Contribution : $815,000

Less : Fixed Cost : ($55,000)

Income: $760,000

I have presumed fxed cost as operating cost and thats why considered it otherwise it would not be considered.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.