Asked by Keondra Rouse on Jul 11, 2024
Verified
O'Malley Company sells 100000 units for $13 a unit. Fixed costs are $350000 and net income is $250000. What should be reported as variable expenses in the CVP income statement?
A) $600000.
B) $700000.
C) $950000.
D) $1050000.
CVP Income Statement
A financial document that applies Cost-Volume-Profit analysis to delineate how changes in cost and volume affect a company's operating income and net income.
Variable Expenses
Costs that change in proportion to the activity of a business.
- Understand the method for determining contribution margin and its importance.
Verified Answer
CA
Camille AltemeJul 17, 2024
Final Answer :
B
Explanation :
Contribution Margin = Sales - Variable Costs
Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit
Using the Contribution Margin approach:
Contribution Margin = Sales - Variable Costs
$250,000 = ($13 × 100,000) - Variable Costs
$250,000 = $1,300,000 - Variable Costs
Variable Costs = $1,300,000 - $250,000
Variable Costs = $1,050,000
Therefore, the variable expenses in the CVP income statement would be $1,050,000.
Option B is the only closest match. Option A and C are too far off from the computed value, while Option D is way above the computed value.
Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit
Using the Contribution Margin approach:
Contribution Margin = Sales - Variable Costs
$250,000 = ($13 × 100,000) - Variable Costs
$250,000 = $1,300,000 - Variable Costs
Variable Costs = $1,300,000 - $250,000
Variable Costs = $1,050,000
Therefore, the variable expenses in the CVP income statement would be $1,050,000.
Option B is the only closest match. Option A and C are too far off from the computed value, while Option D is way above the computed value.
Learning Objectives
- Understand the method for determining contribution margin and its importance.