Sully Company provided the following information for last month: Production in units 3,000 Direct materials cost $7,000 Direct labor cost $10,000 Overhead cost $9,600 Sales commission per unit sold $4 Price per unit sold $29 Fixed selling and administrative expense $7,000 There were no beginning and ending inventories. What is the operating income for Sully Company for last month? a.$24,000 b.$41,400 c.$34,600 d.$27,400 e.$49,400

The correct answer is B.

Explanation:

Giving the following information:

Production in units 3,000

Direct materials cost $7,000

Direct labor cost $10,000

Overhead cost $9,600

Sales commission per unit sold $4

Price per unit sold $29

Fixed selling and administrative expense $7,000

First, we need to calculate the cost of goods sold:

cost of goods sold= direct material + direct labor + overhead

COGS= 7,000 + 10,000 + 9,600= 26,600

We need to make an income statement to determine the net operating income:

Sales= 29*3,000= 87,000

COGS= (26,600)

Gross profit= 60,400

Variable selling cost= (4*3,000)= (12,000)

Fixed selling and administrative expense= (7,000)

Net operating income= 41,400

B) $41,400

Explanation:

Total revenue = 3,000 units x $29 per unit = $87,000

- direct materials                                               ($7,000)

- direct labor cost                                            ($10,000)

- overhead costs                                              ($9,600)

gross profit                                                       $60,400

- sales commission = 3,000 units x $4 =       ($12,000)

- fixed selling and adm. expenses                  ($7,000)

operating income                                             $41,400

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