Question

A firm expects to sell 24,800 units of its product at $10.80 per unit and to incur variable costs per unit of $5.80. Total fixed costs are $68,000. The pretax net income is:

a. $56,000.

b. $68,000.

c. . $124,000.

d. $143,840.

e. $211,840.

Answer 1

a. $56,000.

Explanation:

The pretax income is the income earned after the expenses incurred have been deducted from the total sales. It is the income on which the taxation rate may be applied to.

The total expense is the sum of the fixed and variable expenses. The total sales is the product of the units selling price and the number of units sold while the total variable cost is the product of the variable cost per unit and the total units.

Hence pretax income,

= $10.80(24,800) - $5.80(24,800) - $68,000

= $56,000