CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

A firm plans to manufacture widgets and sell them at a price of $6 each. Fixed costs associated with the project will be $9,500 and variable costs for each widget will be $5.25. The operating profit for a sales level of 22,000 would be closest to ______.

A. $7,000
B. $12,667
C. $106,000
Correct Answer: A

Each unit contributes $0.75 to operating profit. Sales of 22,000 units will contribute $16,500 to operating profit. Taking away the fixed costs of $9,500 leaves a net operating profit of $7,000.

User Contributed Comments 13

User Comment
surob Is operating income equal to operating profit?
nike operating income is operating profit.
Khadria Removing fixed cost 9500 from sales 22000 gives 12500. But we have variable costs also. So any answer less than 12500 can be correct. Luckily only A is less than 12500.
jhmorris Save yourself time and just plug it into the BRKEVN function on the BAII Plus Professional. At the very least it could eliminate careless mistakes.

Steps:

1. Press 2nd and the number 6
2. Q = 22,000 (number or quantity of units)
3. FC = 9,500 (fixed costs)
4. VC = 5.25 (variable cost per unit)
5. P = 6.00 (price per unit)
6. Scroll to PFT and press CPT
VenkatB Thank you jhmorris.
SergoUA 1. $6-$5.25=$ 0.75
2. 22,000*$0.75=$16,500
3. $16,500-$9,500=$7,000
michlam14 operating income is operating profit = EBIT given by revenue - operating expenses
moneyguy Thanks a bunch, jhmorris! These BAII tricks are nice...
johntan1979 You don't need to waste time keying in BRKEVEN for this question. Just calculate 6-5.25, times 22,000, minus 9,500. That's it. 10 seconds.
jonan203 yea, i pretty much keyed in the numbers manually in my 12c, took like 7 seconds, it is better to understand the underlying formulas rather than rely on the calculator to do the work for you, IMO.
GouldenOne if EBIT removes fixed and sales removes fixed... how can you ever have a difference in DOL?
gill15 People love using these calculators way toooo much...
leon121 agree w/jonan203 and johntan
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