{"id":208125,"date":"2025-04-26T08:00:26","date_gmt":"2025-04-26T08:00:26","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=208125"},"modified":"2025-04-26T08:00:28","modified_gmt":"2025-04-26T08:00:28","slug":"omalley-company-sells-100000-units-for-13-a-unit","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/04\/26\/omalley-company-sells-100000-units-for-13-a-unit\/","title":{"rendered":"O&#8217;Malley Company sells 100,000 units for $13 a unit"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">O&#8217;Malley Company sells 100,000 units for $13 a unit. Fixed costs are $350,000 and net income is $250,000. What should be reported as variable expenses in the CVP income statement?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">a. $600,000.<br>b. $700,000.<br>c. $950,000.<br>d. $1,050,000.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-6-color\"><strong>The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Alright, let&#8217;s work through this carefully.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p class=\"wp-block-paragraph\">First, <strong>given<\/strong>:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Sales = 100,000 units \u00d7 $13 = <strong>$1,300,000<\/strong><\/li>\n\n\n\n<li>Fixed Costs = <strong>$350,000<\/strong><\/li>\n\n\n\n<li>Net Income = <strong>$250,000<\/strong><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">The <strong>CVP income statement format<\/strong> is:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">Sales \u2013 Variable Expenses = Contribution Margin \u2013 Fixed Expenses = Net Income<\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">We can rearrange this:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">Contribution Margin = Fixed Expenses + Net Income<\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">Substituting the given values:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">Contribution Margin = $350,000 + $250,000 = <strong>$600,000<\/strong><\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">Now, since:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">Contribution Margin = Sales \u2013 Variable Expenses<\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">We rearrange to find Variable Expenses:<\/p>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\">Variable Expenses = Sales \u2013 Contribution Margin<br>Variable Expenses = $1,300,000 \u2013 $600,000<br><strong>Variable Expenses = $700,000<\/strong><\/p>\n<\/blockquote>\n\n\n\n<p class=\"wp-block-paragraph\">Thus, the correct answer is <strong>(b) $700,000<\/strong>.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">Full Explanation (300 Words):<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">In cost-volume-profit (CVP) analysis, a company&#8217;s income statement is structured to separate variable and fixed costs, helping managers understand how changes in volume impact profits. The CVP format highlights the relationship between costs, volume, and profit.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In this case, O&#8217;Malley Company\u2019s <strong>sales revenue<\/strong> is calculated as the number of units sold multiplied by the selling price per unit:<br>100,000 units \u00d7 $13 per unit = $1,300,000 total sales revenue.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The company also reports <strong>fixed costs<\/strong> of $350,000 and a <strong>net income<\/strong> of $250,000. In a CVP income statement, the <strong>contribution margin<\/strong> must first be determined. The contribution margin is what remains after covering variable costs and is available to cover fixed costs and provide profit.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Contribution Margin = Fixed Costs + Net Income<br>Contribution Margin = $350,000 + $250,000 = $600,000<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This means $600,000 of the $1,300,000 sales revenue remains after paying all variable expenses. Now, to find the variable expenses, we recognize:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Variable Expenses = Sales \u2013 Contribution Margin<br>Variable Expenses = $1,300,000 \u2013 $600,000<br>Variable Expenses = $700,000<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Thus, the amount of variable expenses that should be reported in the CVP income statement is <strong>$700,000<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The correct multiple-choice answer is <strong>b. $700,000<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This approach ensures that the CVP income statement properly reflects the company\u2019s cost structure, which is essential for internal decision-making, planning, and evaluating profitability at different sales volumes.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>O&#8217;Malley Company sells 100,000 units for $13 a unit. Fixed costs are $350,000 and net income is $250,000. What should be reported as variable expenses in the CVP income statement? a. $600,000.b. $700,000.c. $950,000.d. $1,050,000. The correct answer and explanation is : Alright, let&#8217;s work through this carefully. First, given: The CVP income statement format [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-208125","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/208125","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=208125"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/208125\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=208125"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=208125"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=208125"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}