Cournot Company sells 100,000 wrenches for

$12 a unit. Fixed costs are $300,000, and net income
is $200,000. What should be reported as
variable expenses in the CVP income statement?

In order to calculate the variable expenses for the CVP (Cost-Volume-Profit) income statement, we need to consider the total costs and the total contribution margin.

The total costs consist of both fixed costs and variable costs. Fixed costs are those that do not change with the level of production or sales volume, such as rent, salaries, and depreciation. Variable costs, on the other hand, vary directly with the level of production or sales.

To find the variable expenses, we need to subtract the fixed costs from the total costs. If we know the net income, we can use the contribution margin ratio to find the total costs.

The contribution margin ratio is calculated by dividing the contribution margin (sales revenue minus variable expenses) by the sales revenue.

In this case, we are given the net income ($200,000). To find the contribution margin ratio, we can use the formula:

Contribution Margin Ratio = (Net Income + Fixed Costs) / Sales Revenue

Since the sales revenue can be calculated by multiplying the number of units sold by the selling price of each unit, we have:

Sales Revenue = Number of units sold * Selling price per unit

In the given information, 100,000 wrenches are sold for $12 each. So the sales revenue is:

Sales Revenue = 100,000 * $12

Now we can substitute the known values into the formula for the contribution margin ratio:

Contribution Margin Ratio = ($200,000 + $300,000) / (100,000 * $12)

Once we have the contribution margin ratio, we can find the total costs:

Total Costs = (Sales Revenue * Contribution Margin Ratio) - Fixed Costs

Finally, to find the variable expenses, we subtract the fixed costs from the total costs:

Variable Expenses = Total Costs - Fixed Costs

By following this process, you can calculate the variable expenses to be reported in the CVP income statement for the Cournot Company.

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