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28 July, 12:59

Clay Earth Company sells ceramic pottery at a wholesale price of $ 6.00 per unit. The variable cost of manufacture is $ 3.00 per unit. The fixed costs are $ 7 comma 700 per month. It sold 4 comma 000 units during this month. Calculate Clay Earth's operating income (loss) for this month. A. ($ 7 comma 700 ) B. $ 4 comma 300 C. $ 16 comma 300 D. ($ 4 comma 300 )

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  1. 28 July, 14:30
    0
    Operating income $4300 - option c

    Explanation:

    Selling Price per Unit. $6

    variable cost per unit. $3

    Contribution per unit. $ (6-3) = $3

    total number of sold units = 4000, therefore

    Total contribution = 3 x 4000 = 12000

    fixed costs. $7700 per month

    Operating income (profit). = (Total contribution - fixed costs)

    = (12000 - 7700) = $4300
  2. 28 July, 14:46
    0
    Correct answer is B, $4,300

    Explanation:

    An operating income of $4,300 for this month is computed by deducting variable cost from sales to get the contribution margin. Afterwhich, we deduct the fixed cost from the contribution margin to get the operating income. To illustrate further, see computation below:

    Sales (4,000 x $6) $24,000

    Less: variable cost (4,000 x 3) $12,000

    Contribution margin $12,000

    Less: fixed cost $ 7,700

    Operating income $ 4,300
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