Menlove Corporation has provided the following cost data for last year when 100,000 units were produced and sold: Raw materials $200,000
Direct labor 100,000
Manufacturing overhead 200,000
Selling and administrative expense 150,000
All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expense. If the selling price is $10 per unit, the net operating income from producing and selling 110,000 units would be:
a. $450,000
b. $385,000.
c. $405,000.
d. $605,000

Net operating income= $405,000

Explanation:

First, we need to calculate the unitary variable cost:

Total variable cost= 650,000 - 100,000 - 100,000= $450,000

Unitary variable cost= 450,000 / 100,000

Unitary variable cost= $4.5

Total fixed cost= 100,000 + 100,000= $200,000

Now, the net operating income for 110,000 units:

Sales= 10*110,000= 1,100,000

Total variable cost= 110,000*4.5= (495,000)

Total contribution margin= 605,000

Total fixed cost= 200,000

Net operating income= $405,000

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