Accounting problem help?
5.For the year 2005, Your Company anticipates sales of $600,000. Your Company also anticipates that its fixed costs will increase by $10,000 over the 2004 amount. Therefore, 2005 net income (or loss) is projected to be:
a.$210,000
b.$230,000
c.$60,000
d.$80,000
e.none of the above
6.For the year 2005, Your Company anticipates sales of $220,000. Therefore, 2005 net income or loss is projected to be:
a.$140,000
b.$14,667
c.$5,000
d.$198,000
e.none of the above
please explain and this isnt my homework, its just some review problems i need help with. i already have the answers. explanation is most important thanks
Answer:
5. In 2004 the fix costs must have been $60,000 ($400,000-$300,000-$40,0000). For 2005, fixed costs will be $70,000 and variable costs will be 150% of the 2004 costs, since sales have increased by 50%. That makes the variable costs $450,000. Total costs are $520,000, leaving $80,000 net income.
6. Now sales are 45% for what they were in 2004. If fixed costs are still increasing to $70,000 and varible costs are 45% or $300,000 = $135,000, then total costs are $205,000, making the profit $15,000, if I did the math right in my head.
I am assuming that variable costs are proportional to sales. That's not always the case. In manufacturing, variable costs are driven by the amount of things you produce.
Gotta love homework questions. You'll learn more when you do it yourself.
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