Krazy Kayaks sells its entry-level kayaks for $750 each. Its variable cost is $500 per kayak. Fixed costs are $25,000 per month for volumes up to 1100 kayaks. Above 1100 kayaks, monthly fixed costs are $60,000. What is the budgeted operating income at a level of 2500 kayaks per month?
A)$625,000
B)$1,815,000
C)$565,000
D)$600,000

Question

Quizplus · Accepted Answer

For 2500 kayaks, the total revenue is $750 * 2500 = $1,875,000. The variable cost is $500 * 2500 = $1,250,000. Since the production is above 1100 kayaks, the fixed cost is $60,000. Therefore, the operating income is $1,875,000 - $1,250,000 - $60,000 = $565,000.

Krazy Kayaks Sells Its Entry-Level Kayaks for $750 Each