Question

The following information is available for Discounted Supplies Inc. and its two divisions, Durable Goods and Nondurable Goods. Whole Durable Nondurable Company Goods Goods Net sales $100,000 $60,000 $40,000 Fixed costs controllable by Division Manager 16,500 12,500 4,000 Fixed costs controlled by others 8,000 5,000 3,000 Variable costs: Cost of merchandise sold 24,500 17,500 7,000 Operating expenses 16,400 10,000 6,400 Unallocated costs 1,000 What is the income before taxes for the company as a whole?

Answer 1

Answer:

The income before taxes for Discounted Supplies Inc is calculated as follows:

Sales - $100,000

less Variable cost - $24,500

less Fixed cost: Controllable & Uncontrollable & Unallocated - $25,500

less Operating cost - $16,400

Net Income = $33,600

Explanation:

The net income is the income before taxes.  It is arrived at after deducting variable and fixed costs of sales, including operating cost.

It is based on this figure that income taxes will be levied.

The net income or income before taxes is regarded as the bottomline profit or returns or earnings that is distributable to stakeholders, including the government for taxation and the shareholders in form of dividends.

It shows the result of the efforts in running a business.  A positive income before taxes shows that costs are being efficiently managed.  It leaves a compensation for investors and the economy as a whole.