In 1993 Izzo made operating income of $ 12,000 on revenue of $ 1 million from selling 75, 000 straps. In 1994 Izzo expected to sell 92,000 straps for $1.7 million.
1. Suppose the variables costs per strap are $ 10. Compute total fixed and total variable costs for 1993.
2. Suppose the cost behavior in 1994 was the same as in 1993. Estimate Izzo's operating income for 1994 (a) with sales at the predicted 92,00 straps, (b) with unit sales 10% above the predicted level, and (c) with unit sales 10% below the predicted level.
3. Explain why the predicted 1994 operating income was so much greater than the 1993 operating income
1. Sales Revenue = $1.0 million
Number of units sold = 75000
Total Variable Cost = $10*75000=0.75 million
Total Fixed Cost = Revenues - Operating income - Variable Cost = 1.0-0.75-0.012=0.238 million
The expert examines CVP and predictions of operating incomes.