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.

Question

Quizplus · Accepted Answer

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.

O'Malley Company Sells 100000 Units for $13 a Unit