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.

Expert Answers

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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.

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