Detailed Answer
Answer (A) is correct.
The contribution margin from manufacturing (sales - variable costs) is
$10 ($40 - $30) per unit sold, or $1,200,000 (120,000 units x $10). The
fixed costs of manufacturing ($600,000) and selling and administrative
costs ($400,000) are deducted from the contribution margin to arrive at
an operating income of $200,000.