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Basic Question 5 of 5
A firm plans to manufacture widgets and sell them at a price of $6 each. Fixed costs associated with the project will be $9,500 and variable costs for each widget will be $5.25. The operating profit for a sales level of 22,000 would be closest to ______.
B. $12,667
C. $106,000
A. $7,000
B. $12,667
C. $106,000
User Contributed Comments 13
| User | Comment |
|---|---|
| surob | Is operating income equal to operating profit? |
| nike | operating income is operating profit. |
| Khadria | Removing fixed cost 9500 from sales 22000 gives 12500. But we have variable costs also. So any answer less than 12500 can be correct. Luckily only A is less than 12500. |
| jhmorris | Save yourself time and just plug it into the BRKEVN function on the BAII Plus Professional. At the very least it could eliminate careless mistakes. Steps: 1. Press 2nd and the number 6 2. Q = 22,000 (number or quantity of units) 3. FC = 9,500 (fixed costs) 4. VC = 5.25 (variable cost per unit) 5. P = 6.00 (price per unit) 6. Scroll to PFT and press CPT |
| VenkatB | Thank you jhmorris. |
| SergoUA | 1. $6-$5.25=$ 0.75 2. 22,000*$0.75=$16,500 3. $16,500-$9,500=$7,000 |
| michlam14 | operating income is operating profit = EBIT given by revenue - operating expenses |
| moneyguy | Thanks a bunch, jhmorris! These BAII tricks are nice... |
| johntan1979 | You don't need to waste time keying in BRKEVEN for this question. Just calculate 6-5.25, times 22,000, minus 9,500. That's it. 10 seconds. |
| jonan203 | yea, i pretty much keyed in the numbers manually in my 12c, took like 7 seconds, it is better to understand the underlying formulas rather than rely on the calculator to do the work for you, IMO. |
| GouldenOne | if EBIT removes fixed and sales removes fixed... how can you ever have a difference in DOL? |
| gill15 | People love using these calculators way toooo much... |
| leon121 | agree w/jonan203 and johntan |
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Learning Outcome Statements
evaluate a company's operating profitability and working capital using key measures
CFA® 2024 Level I Curriculum, Volume 3, Module 5.