Net income of Company Selling Cars
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1. Let's assume a company produces 90 cars with VC of $9,000 per vehicle and $200,000 in fixed costs. Let's also assume the cars selling price is set at $12,000.
Questions: what would net income be if the company sells all 90 cars in the same year using the TRADITIONAL income statement? What would net income be using the CONTRIBUTION margin approach?
2. Research if either, your employer or a local organization, distinguishes between variable and fixed costs for planning and controlling purposes. If so, try to find out if company feels this is beneficial or not in terms of planning and controlling operations.
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Solution Summary
The solution determines the net income of a company selling cars using a traditional income statement.
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1. Let's assume a company produces 90 cars with VC of $9,000 per vehicle and $200,000 in fixed costs. Let's also assume the cars selling price is set at $12,000.
Questions: what would net income be if the company sells all 90 cars in the same year using the TRADITIONAL income statement? What would net income be using the CONTRIBUTION margin approach?
Tradition Income statement
Sales (12000*90) = 1080000
Less cost
Direct cost
(9000*90) 810000
Fixed costs 200000
Net Income = 70000
Contribution Income statement
Sales (12000*90) = 1080000
Less variable cost
(9000*90) 810000
Contribution Margin =270000
Less Fixed costs= 200000
Net Income = 70000
2. Research if either, your employer or a local organization, distinguishes between variable and fixed costs for planning and controlling purposes. If so, try to find out if company feels this is beneficial or not in terms of planning and controlling operations.
I have taken the organization TT Ltd. (tttextiles.com) It is one of ...
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