Question

Management anticipates fixed costs of $73,200 and variable costs equal to 45% of sales. What will pretax income equal if sales are $332,000 ?

Answer 1

To find the pretax income when sales are $332,000, multiply sales by 45% to get variable costs, then subtract variable costs plus fixed costs from sales. The pretax income equates to $109,400.

Step-by-step explanation:

To calculate pretax income, you will first need to determine the total variable costs that the company incurs based on the information provided that variable costs are 45% of sales. If sales are $332,000, then variable costs are 45% of that amount. Once you have total variable costs, subtract both fixed costs and variable costs from the total sales to get the pretax income.

So, the total variable costs would be $332,000 x 45% = $149,400. Then calculate the pretax income by subtracting both fixed costs and variable costs from sales:

Pretax income = Sales - (Fixed costs + Variable costs) = $332,000 - ($73,200 + $149,400) = $332,000 - $222,600 = $109,400.