The following income statements illustrate different cost structures for two com
ID: 2471909 • Letter: T
Question
The following income statements illustrate different cost structures for two competing companies:
Reconstruct Kent’s income statement, assuming that it serves 172 customers when it lures 86 customers away from Trent by lowering the sales price to $150 per customer.
Sales revenue
Variable cost
Contribution margin
Fixed cost
Net income
Reconstruct Trent’s income statement, assuming that it serves 172 customers when it lures 86 customers away from Kent by lowering the sales price to $150 per customer.
Sales revenue
Variable cost
Contribution margin
Fixed cost
Net income
The following income statements illustrate different cost structures for two competing companies:
Company Name Kent Trent Number of customers (a) 86 86 Sales revenue (a × $250) $ 21,500 $ 21,500 Variable cost (a × $185) N/A (15,910 ) Variable cost (a × $0) 0 N/A Contribution margin 21,500 5,590 Fixed cost (15,910 ) 0 Net income $ 5,590 $ 5,590Reconstruct Kent’s income statement, assuming that it serves 172 customers when it lures 86 customers away from Trent by lowering the sales price to $150 per customer.
Sales revenue
Variable cost
Contribution margin
Fixed cost
Net income
Reconstruct Trent’s income statement, assuming that it serves 172 customers when it lures 86 customers away from Kent by lowering the sales price to $150 per customer.
Sales revenue
Variable cost
Contribution margin
Fixed cost
Net income
Explanation / Answer
Answer a. Kent's Income Statement Sales Revenue (172 Customers X $150) 25,800 Variable Cost (172 Customers x $0) - Contribution Margin 25,800 Fixed Costs (15,910) Net Income 9,890 Answer b. Trent's Income Statement Sales Revenue (172 Customers X $150) 25,800 Variable Cost (172 Customers x $185) 31,820 Contribution Margin (6,020) Fixed Costs - Net Income (6,020)
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