Carol's Dolls has fixed operating costs of $25,000. Its sale price is $60 per doll, and its variable operating cost is $30 per doll. It sells 3,000 dolls per month. The firm's earnings before interest and taxes for the month is ________.

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BlackTom AI · Accepted Answer

We start by laying out the given numbers and computing the key financials for the month.
Revenue = price per doll × quantity sold = $60 × 3,000 = $180,000.
Variable operating costs = variable cost per doll × quantity = $30 × 3,000 = $90,000.
Fixed operating costs are given as $25,000 per month.
Next, earnings before interest and taxes (EBIT) are calculated as:
EBIT = Revenue − Variable costs − Fixed costs = $180,000 − $90,000 − $25,000 = $65,000.
Now, evaluate each answer option:
- Option A: $50,000. If this were EBIT, it would imply a total deduction of $130,000 from $180,000 revenue (i.e., $180,000 − $50,000 = $130,000 total costs). The sum of fixed costs and variable costs is $115,000 ($25,000 + $90,000). Since $130,000 total costs exceed that, this option does not align with the given cost structure and the computed EBIT.
- Option B: $55,000. This would require total costs of $125,000 (since $180,000 − $125,000 = $55,000). The actual total costs from fixed plus variable are $115,000, so this option underestimates the costs relative to the given data and the calculated EBIT.
- Option C: $65,000. This matches the calculation above: $180,000 − $90,000 − $25,000 = $65,000. The result is consistent with the stated price, quantities, and cost structure.
- Option D: $75,000. This would require total costs of $105,000 (since $180,000 − $75,000 = $105,000). The fixed costs alone are $25,000 and the variable costs are $90,000, totaling $115,000, which is higher than $105,000. Therefore, this option is not consistent with the given data.
In summary, the only option that aligns with Revenue, Variable costs, and Fixed costs is the one corresponding to EBIT of $65,000, derived directly from the formula EBIT = Revenue − Variable costs − Fixed costs. The math confirms this result, and the other options conflict with at least one component of the cost structure or the revenue figures.

Carol's Dolls has fixed operating costs of $25,000. Its sale price is $60 per doll, and its variable operating cost is $30 per doll. It sells 3,000 dolls per month. The firm's earnings before interest and taxes for the month is ________.

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