Total Per Unit Total Per Unit Total Company Sales revenue $1,200,000 $20 $720,000 $36 $1
Total Per Unit Total Per Unit Total Company Sales revenue $1,200,000 $20 $720,000 $36 $1
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
100%
In an effort to raise the demand for reading tests, managers are planning to lower the price from $36 per test to $20 per test, the current price of the math test. They believe that doing so will increase the demand for reading tests to 60,000. Prepare a contribution format income statement reflecting Abado’s new pricing and demand structure.
Abado Profiles provides testing services to school districts that wish to assess students’ reading and mathematical abilities. Last year Abado evaluated 60,000 math tests and 20,000 reading tests. An income statement for last year follows.
Math Testing
|
Reading Testing
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Total
|
Per Unit
|
Total
|
Per Unit
|
Total
Company |
||||||
Sales revenue
|
$1,200,000 | $20 | $720,000 | $36 | $1,920,000 | |||||
Variable expenses
|
840,000 | 14 | 360,000 | 18 | 1,200,000 | |||||
Contribution margin
|
$360,000 | $6 | $360,000 | $18 | 720,000 | |||||
Fixed expenses
|
360,000 | |||||||||
Operating income
|
$360,000 |
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