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13 October, 14:43

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?

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  1. 13 October, 18:04
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    =$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
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