xercise 11-12 Using fixed cost as a competitive business strategy LO 11-2 The fo

Question

xercise 11-12 Using fixed cost as a competitive business strategy LO 11-2 The following income statements illustrate diferent cost structures for two competing companies: Income Statements Company Name KentTrent Number of customers (a) Sales revenue (a Variable cost (a x $175) Variable cost (a x $0) 100 250) $ 25,000 N/A 100 $ 25,000 (17,500) NIA 25,0007,500 7,500 7,500 Contribution margin Fixed cost (17,500) Net income Required a. Reconstruct Kent's income statement, assuming that it serves 200 customers when it tures 100 customers away from Trent by lowering the sales price to $150 per customer KENT Income Statement Sales revenue Variable cost Contribution margin Fixed cost Net income (loss)

Explanation / Answer

a)

KENT

Income Statement

Sales Revenue

200 x $150

$        30,000

Variable Cost

N/A

$                   -  

Contribution Margin

$        30,000

Fixed Cost

$      (17,500)

Net Income (loss)

$        12,500

b)

TRENT

Income Statement

Sales Revenue

200 x $150

$        30,000

Variable Cost

200*$175

$        35,000

Contribution Margin

$         (5,000)

Fixed Cost

N/A

$                   -  

Net Income (loss)

$         (5,000)

KENT

Income Statement

Sales Revenue

200 x $150

$        30,000

Variable Cost

N/A

$                   -  

Contribution Margin

$        30,000

Fixed Cost

$      (17,500)

Net Income (loss)

$        12,500

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