A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs per unit of $6. Total fixed costs are $70,000. The pretax net income is:

Question

Quizplus · Accepted Answer

Total revenue = 25,000 x $11 = $275,000 
Total variable costs = 25,000 x $6 = $150,000 
Total contribution margin = $275,000 - $150,000 = $125,000 
Total contribution margin ratio = $125,000 / $275,000 = 0.4545 
Break-even point (in units) = $70,000 / ($11 - $6) = 14,000 
Margin of safety (in units) = 25,000 - 14,000 = 11,000 
Pretax net income = Total contribution margin - Total fixed costs 
= $125,000 - $70,000 
= $55,000

A Firm Expects to Sell 25,000 Units of Its Product