Givenchy Company sells 100,000 wrenches for $12.00 per unit. Fixed costs are $350,000 and net income is $250,000. What should be reported as variable expenses in the CVP income statement?
A) $540,000
B) $600,000
C) $950,000
D) $850,000

Question

Quizplus · Accepted Answer

Variable expenses can be calculated using the contribution margin formula: 
Contribution margin = Sales - Variable expenses 
Contribution margin per unit = Selling price per unit - Variable cost per unit

We know that the company sold 100,000 wrenches for $12.00 per unit, so sales revenue is $1,200,000 (100,000 units x $12.00 per unit). We also know that fixed costs are $350,000 and net income is $250,000. Using the contribution margin formula, we can solve for variable expenses:

Contribution margin = Sales - Variable expenses 
Contribution margin = $1,200,000 - Variable expenses 
Contribution margin = $850,000

We know that contribution margin per unit is the selling price per unit ($12.00) minus the variable cost per unit. Therefore, we can solve for variable cost per unit:

Contribution margin per unit = Selling price per unit - Variable cost per unit 
$12.00 per unit - Variable cost per unit = $8.50 per unit 
Variable cost per unit = $3.50 per unit

Now we can calculate total variable expenses:

Total variable expenses = Variable cost per unit x Number of units sold 
Total variable expenses = $3.50 per unit x 100,000 units 
Total variable expenses = $350,000

Therefore, the answer is B ($600,000) as it represents the total variable expenses.

Givenchy Company Sells 100,000 Wrenches for $12