Tyrene Products manufactures recreational equipment. One of the company's products, a skateboard, sells for $30. The skateboards are manufactured in an antiquated plant that relies heavily on direct labor workers. Thus, variable costs are high, totaling $18.00 per skateboard of which 60% is direct labor cost.
| Over the past year the company sold 51,000 skateboards, with the following operating results: |
|
|
|
| Sales (51,000 skateboards) |
$ |
1,530,000 |
| Variable expenses |
|
918,000 |
|
|
|
| Contribution margin |
|
612,000 |
| Fixed expenses |
|
492,000 |
|
|
|
| Net operating income |
$ |
120,000 |
|
|
|
|