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?
(a) $700,000. (c) $500,000.
(b) $900,000. (d) $1,000,000.
We know that:
Total sales = 100,000 wrenches * $12/unit = $1,200,000
Net income = $200,000
Fixed costs = $300,000
Total expenses (fixed + variable) = Total sales - Net income
Total expenses = $1,200,000 - $200,000 = $1,000,000
Now, we need to find the variable expenses:
Variable expenses = Total expenses - Fixed costs
Variable expenses = $1,000,000 - $300,000 = $700,000
So the correct answer is (a) $700,000.
To determine the variable expenses in the CVP (Cost-Volume-Profit) income statement, we need to first calculate the contribution margin, which represents the amount available to cover fixed costs and generate profit.
The contribution margin can be calculated using the formula:
Contribution margin = Total revenue - Variable expenses
We know that the company sold 100,000 wrenches for $12 each, so the total revenue is:
Total revenue = Number of units sold x Price per unit
Total revenue = 100,000 units x $12/unit
Total revenue = $1,200,000
We also know that the fixed costs are $300,000 and the net income is $200,000. The contribution margin can be calculated as:
Contribution margin = Total revenue - Fixed costs
Contribution margin = $1,200,000 - $300,000
Contribution margin = $900,000
Now, to find the variable expenses, we can rearrange the contribution margin formula:
Variable expenses = Total revenue - Contribution margin
Variable expenses = $1,200,000 - $900,000
Variable expenses = $300,000
Therefore, the correct answer is (c) $500,000.
To determine the correct variable expenses for the CVP (Cost-Volume-Profit) income statement, we need to understand the components of the income statement and how they are calculated.
The CVP income statement typically consists of three main components: sales revenue, variable expenses, and fixed expenses.
In this scenario, we are given that 100,000 wrenches are sold for $12 per unit, resulting in a total sales revenue of 100,000 x $12 = $1,200,000.
Net income is given as $200,000, which represents the difference between total revenue and total expenses (variable and fixed).
Fixed costs are provided as $300,000, which are expenses that do not change with the level of production or sales.
To calculate the variable expenses, we need to subtract the fixed costs from the total expenses (fixed + variable) to find the variable expenses.
Since we are given that net income is $200,000, we can deduce that total expenses would be equal to:
Total Expenses = Total Revenue - Net Income
Total Expenses = $1,200,000 - $200,000 = $1,000,000
Now we can calculate the variable expenses by subtracting the fixed costs from the total expenses:
Variable Expenses = Total Expenses - Fixed Costs
Variable Expenses = $1,000,000 - $300,000 = $700,000
Therefore, the correct answer to report as variable expenses in the CVP income statement is (a) $700,000.