Fave Motion Pictures sells movie tickets for $14 per movie patron. Variable costs are $4.50 per movie patron and fixed costs are $52,000 per month. The company's relevant range extends to 33,000 movie patrons per month. What is Fave Motion Pictures' projected operating income if 20,000 movie patrons see movies during a month?

The operating income amounts to $138,000

Explanation:

Computing the operating income is as:

Operating income = Contribution margin - Fixed cost

Computing the contribution margin as:

Contribution margin = Sales - Variable cost

where

Sales is $14

Variable cost os $4.50

So,

Contribution margin = $14 - $4.50

Contribution margin = $9.5

It will be multiplied with the 20,000 movie patrons

So, it will be:

Contribution margin = $9.5 × 20,000

Contribution margin = $190,000

And

Fixed cost is $52,000

Putting the values above:

Operating Income = $190,000 - $52,000

Operating income = $138,000

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