Question

The following income statement was produced when volume of sales was at 400 units. Sales Revenue $ 1,600 Variable Cost 700 Contribution Margin $ 900 Fixed Cost 410 Net Income $ 490 If volume reaches 500 units, net income will be:

Answer 1

If volume reaches 500 units, net income will be: $715

Step-by-step explanation:

When volume of sales was at 400 units:

Selling price per unit = Sales Revenue/400 = $1,600/400 = $4

Variable Cost per unit = Variable Cost/400 = $700/400 = $1.75

If volume reaches 500 units:

Total Sales Revenue = $4 x 500 = $2,000

Variable Cost = $1.75 x 500 = $875

Fixed Cost will not change = $410

Net income = Total Sales Revenue - Variable Cost - Fixed Cost = $2,000 - $875 - $410 = $715