Question

During its most recent fiscal year, Raphael Enterprises sold 380,000 electric screwdrivers at a price of $20.40 each. Fixed costs amounted to $1,444,000 and pretax income was $1,824,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question?a. $4,484,000.b. $3,268,000.c. $5,928,000.d. $3,752,000.e. $3,040,000.

Answer 1

Answer:

Option (a) is correct.

Explanation:

Pretax income = Contribution - Fixed cost

Contribution = Pretax income + Fixed cost

                     = $1,824,000 + $1,444,000

                     = $3,268,000

Sales - Variable Cost = Contribution

Variable Cost = Sales - Contribution

                       = (380,000 electric screwdrivers × $20.40 each) - $3,268,000

                       = $7,752,000 - $3,268,000

                       = $4,484,000