# Direct materials\$4.00 per unit Direct labor\$3.00 per unit Variable manufacturing overhead\$2.00 per unit Variable selling and administrative costs\$1.00 per unit Fixed manufacturing overhead\$25,000 Fixed selling and administrative costs\$10,000 **Calculate Preferred's net operating income assuming the company uses variable costing. The profit equation for the company whose costs are outlined here abides by a known formula:

(selling price * quantity of goods sold) - (unit variable costs * quantity of goods sold) - fixed costs = operating income.

Here, selling prices are: direct materials (\$4.00 per unit), direct labor (\$3.00...

## See This Answer Now

Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.

The profit equation for the company whose costs are outlined here abides by a known formula:

(selling price * quantity of goods sold) - (unit variable costs * quantity of goods sold) - fixed costs = operating income.

Here, selling prices are: direct materials (\$4.00 per unit), direct labor (\$3.00 per unit), variable manufacturing overhead (\$2.00 per unit), and variable selling and administrative costs (\$1.00 per unit). The total variable cost is \$10 per unit.

The fixed costs are given as follows: fixed manufacturing overhead (\$25,000), and fixed selling and administrative costs (\$10,000). The total fixed costs are \$35,000.

Because this question doesn't feature either the cost of the units sold, nor the number of units sold, we can use these given costs to write an equation for the cost, "m," in terms of units sold, "x." These variables are the variables used to represent the slope, "m" and independent variable, "x" in a y=mx+b form of a linear equation.

So, the profit equation given these total variable costs and total fixed costs is:

(m- \$10) * x- \$35,000 = operating income.

Here, "m" represents the sale cost per unit, "x" represents the number of units, and \$10 and \$35,000 are the variable operating costs and fixed costs, respectively.

Approved by eNotes Editorial Team