Butteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold: All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expense. There are no beginning or ending inventories. If the selling price is $10 per unit, the net operating income from producing and selling 110,000 units would be:
A)$450,000
B)$385,000
C)$405,000
D)$560,000

Question

Butteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold:  All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expense. There are no beginning or ending inventories. If the selling price is $10 per unit, the net operating income from producing and selling 110,000 units would be:
A)$450,000 
B)$385,000 
C)$405,000 
D)$560,000

Quizplus · Accepted Answer

To calculate the net operating income for producing and selling 110,000 units, we need to use the contribution margin approach:

Selling price per unit = $10 
Variable cost per unit = $4.50 ($450,000 ÷ 100,000 units)

Contribution margin per unit = Selling price per unit - Variable cost per unit = $10 - $4.50 = $5.50

Contribution margin for 110,000 units = 110,000 units x $5.50 per unit = $605,000

Total fixed costs = Manufacturing overhead + Selling and administrative expense = $100,000 + $100,000 = $200,000

Net operating income = Contribution margin - Total fixed costs = $605,000 - $200,000 = $405,000

Therefore, the answer is C) $405,000.

Butteco Corporation Has Provided the Following Cost Data for Last