Question

Management anticipates fixed costs of $72,500 and variable costs equal to 40% of sales. What will income equal if sales are $325,000?

Answer 1

Answer: $122500

Explanation:

The income if sales are $325,000 will be calculated as thus:

Sales = $325,000

Less: Variable cost = $130000

Contribution margin = $195,000

Less: Fixed cost = $72,500

Income before tax = $195,000 - $72500 = $122500

Note:

Variable cost = 40% × Sales

= 40% × $325000

= 0.4 × $325,000

= $130000

Contribution margin = 60% × Sales

= 60% × $325000

= 0.6 × $325,000

= $195000