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Answer :
A firm operates at 80% of capacity for the past year, during which fixed costs were $196,000, variable costs were 67% of sales, and sales were $918,000. Operating profit was "option A. $106'940."
The profit that results from a company's operating activities, which is earned when revenue from sales is greater than the expenses involved in producing and selling the product is known as Operating Profit.
- Fixed costs are business expenses that are not tied to changes in the number of products or services delivered. Rent, wages, and insurance are examples of fixed costs.
- Variable costs, such as raw materials and energy, are costs that change as a result of changes in a company's production or sales levels. Sales commissions, direct labor, and transaction fees are examples of variable costs.
We'll now utilize the above data to answer the question:
The firm has been operating at 80% of its capacity for the past year.
Fixed Costs: $196,000; Variable Costs: 67% of Sales; Sales: $918,000
Variable Costs = 67% of Sales = 67/100 * $918,000 = $615,060
Operating Profit = Sales - (Variable Costs + Fixed Costs) = $918,000 - ($615,060 + $196,000) = $106,940
Therefore, the operating profit was $106,940 during that year. Hence the correct option is a) $106,940.
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