Question

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

a. $57,500
b. $122,500
c. $130,000
d. $181,250
e. $252,500

Answer 1

First, we need to calculate the total variable costs:
Variable costs = 40% x $325,000 = $130,000

Next, we can calculate the total costs:
Total costs = Fixed costs + Variable costs
Total costs = $72,500 + $130,000 = $202,500

Finally, we can calculate the pretax income:
Pretax income = Sales - Total costs
Pretax income = $325,000 - $202,500 = $122,500

Therefore, the pretax income would be $\$122,500$ (option b).