Question

If a firm sells 40,000 units and the contribution margin on the firm's single product is $4.00 per unit and fixed costs are $60,000, what will the firm's operating profit be at this level of sales volume?

Answer 1

Answer:

=$100,000

Explanation:

Contribution margin equals to sales - variable cost.

It means the contribution margin has accounted for variable costs.

The total contribution margin, in this case, will be contribution margin per item multiplied by total units sold.

=40,000 units x 4

=$160,000

Operating income = Total contribution margin - fixed costs

=$160,000 - $60,000

=$100,000