Question

The following income statements illustrate different cost structures for two competing companies: Income Statements Company Name Stuart Solomon Number of customers (a) 82 82 Sales revenue (a * $220) $ 18,040 $ 18,040 Variable cost (a * $185) N/A (15,170) Variable cost (a * $0) 0 N/A Contribution margin 18,040 2,870 Fixed cost (15,170) 0 Net income $ 2,870 $ 2,870 Required a. Reconstruct Stuart's income statement, assuming that it serves 164 customers when it lures 82 customers away from Solomon by lowering the sales price to $120 per customer. b. Reconstruct Solomon's income statement, assuming that it serves 164 customers when it lures 82 customers away from Stuart by lowering the sales price to $120 per customer.

Answer 1

19,680 Answer to Requirement A. STUART COMPANY Income Statement Sales Revenue Variable Cost Contribution Margin Fixed Cost Net Income (Loss) 19,680 15,170 4,510 Sales Revenue = 164 * $120 = $19,680 Variable Cost = 164 * $0 = $0 Answer to Requirement B. STUART COMPANY Income Statement Sales Revenue Variable Cost Contribution Margin Fixed Cost Net Income (Loss) 19,680 30,340 -10,660 -10,660 Sales Revenue = 164 * $120 = $19,680 Variable Cost = 164 * $185 = $30,340