Question

At a break-even point of 700 units, variable costs were $980 and fixed costs were $595. What will the 701st unit sold contribute to operating profits before income taxes?

A. $0.85
B. $1.40
C. $2.25
D. $3.10

Answer 1

The 701st unit sold will contribute B. $1.40 to operating profits before income taxes.

Step-by-step explanation:

To determine the contribution to operating profits before income taxes for the 701st unit sold, we need to calculate the total costs for 701 units.

The fixed costs remain the same at $595, but the variable costs need to be recalculated for the additional unit.

The variable cost per unit is $980/700 units, so the additional unit would contribute $1.40 to operating profits before income taxes.