Question

Omega Company has sales of $300,000 and cost of goods sold of $200,000. The cost of goods sold is a variable cost. The Company incurred $20,000 of fixed operating expenses and $40,000 of variable operating expenses. Based on this information A. the company's gross margin is $100,000, while its contribution margin is $60,000. B. net income is $100,000 under the gross margin format and $40,000 under the contribution margin format. C. the company's gross margin is $60,000, while its contribution margin is $100,000. D. net income is $40,000 under the gross margin format and $100,000 under the contribution margin format.

Answer 1

Answer:

A. the company's gross margin is $100,000, while its contribution margin is $60,000.

Explanation:

Under the gross margin, the net income would be

= Sales - cost of goods sold

= $300,000 - $200,000

= $100,000

Under the contribution margin, the net income would be

= Sales - cost of goods sold - variable operating expenses

= $300,000 - $200,000 - $40,000

= $60,000

Under the gross margin, no operating expenses would be considered whereas for contribution margin, only the variable operating expenses is considered