ABC Company estimates the following data for the coming month Total variable cos
ID: 2591121 • Letter: A
Question
ABC Company estimates the following data for the coming month
Total variable costs
$35,000.00
Income tax rate
25%
Contribution margin percentage
40%
Estimated monthly operating fixed costs
$16,000.00
Required minimum net income as percentage of total sales
10%
Find the estimated operating income for the coming month.
A. $1,500.00
B. $2,500.00
C. $4,500.00
D. $7,333.33
ABC Company estimates the following data for the coming month
Total variable costs
$35,000.00
Income tax rate
25%
Contribution margin percentage
40%
Estimated monthly operating fixed costs
$16,000.00
Required minimum net income as percentage of total sales
10%
Explanation / Answer
Contribution margin=Sales-Variable costs
Hence Variable costs=(100-40)=60% of sales
Hence total sales=(35000/0.6)=$58,333.33(Approx)
Hence Contribution margin=(0.4*58,333.33)=$23,333.33
Less:Fixed costs=$16000
estimated operating income for the coming month=$7333.33(Approx)(D).