Calculating Operating Income for Pac S/B
What is the operating income of Pac S/B?
Operating Income of Pac S/B is as follows:
A. RM6.50 per unit
B. RM6.00 per unit
C. RM5.50 per unit
D. RM5.00 per unit
Operating Income Calculation
Calculation of Contribution Margin:
Contribution Margin = Selling Price per Unit - Variable Production Costs per Unit
Contribution Margin = RM11 - RM3
Contribution Margin = RM8
Contribution Margin Ratio = (Contribution Margin ÷ Selling Price per Unit) × 100
Contribution Margin Ratio = (RM8 ÷ RM11) × 100
Contribution Margin Ratio = 72.7%
Calculation of Contribution Margin per Unit:
Contribution Margin per Unit = Selling Price per Unit - Variable Production Costs per Unit
Contribution Margin per Unit = RM11 - RM3
Contribution Margin per Unit = RM8
Calculation of Profit:
Operating Income = (Contribution Margin per Unit × Units Sold) - Fixed Costs
Operating Income = [(RM8 × 10,000) - RM5,000]
Operating Income = (RM80,000 - RM5,000)
Operating Income = RM75,000
Therefore, the operating income is RM75,000. Option E. None of the above is the correct answer since none of the provided options is correct.
The operating income of Pac S/B is calculated by determining the contribution margin and deducting fixed costs from it. Contribution margin is the difference between the selling price per unit and variable production costs per unit.
In this case, the selling price per unit is RM11 and the variable production costs per unit are RM3. Therefore, the contribution margin per unit is RM8.
After calculating the contribution margin, the total contribution margin for the given number of units sold is multiplied by the fixed costs to find the operating income. In this scenario, the operating income of Pac S/B is RM75,000.
By understanding the contribution margin and fixed costs, businesses can accurately determine their operating income and make informed decisions about their financial performance.