# Impala Industries manufactures a component used by car manufacturers. Impala can produce...

## Question:

Impala Industries manufactures a component used by car manufacturers. Impala can produce 1,000,000 components per year. A foreign car manufacturer has approached Impala with an offer to purchase 120,000 components at price of $6 per unit. Impala's results for last year are as follows:  Sales(900,000 at$8) $7,200,000 Variable costs 2,700,000 Contribution margin 4,500,000 Fixed costs 2,350,000 Operating income$2,150,000

If Impala accepts the offer, it will only be able to sell 880,000 units at the regular price due to its capacity constraints. What wilt Impala&tt39;s total operating income be next year if it accepts the offer?

a. $2,710,000 b.$2,410,000

c. $2,650,000 d.$4,760,000

## Income Statement:

This question calls for basic familiarity with a company's income statement, which presents revenues, expenses, and profit/loss for a period of time. The income statement differentiates between fixed and variable expenses.

The answer is "b. $2,410,000." The first step is to determine the variable cost per unit. It is$3 ($2,700,000/900,000). Now we can project the operating income, as outlined below. - Revenue = 880,000 *$8 + 120,000 * 6 = $7,760,000 - Variable costs = 1,000,000 *$3 = $3,000,000 - Contribution margin =$7,760,000 - $3,000,000 =$4,760,000

- Operating income = $4,760,000 -$2,350,000 = \$2,410,000