Inco me TOTAL Sales 30,940 30,940 100.0% VARIABLE COSTS 10,668 $ 16,242 Direct L
ID: 356309 • Letter: I
Question
Inco me TOTAL Sales 30,940 30,940 100.0% VARIABLE COSTS 10,668 $ 16,242 Direct Labor O Direct Material Inventory Carry Total Variable Costs Contribution Margin S0 S0 SO SO S0 S0 $10,668 $16,242 52.5% $26,910 4,031 $26,910 $4,031 870% 13.0% PERIOD COSTS Depreciation SG&A;: R&D; D S0 SO0 $1,000 $0 so $O $ 2,955 S 301 $ 2,000 Promotion $ 2,000 12.9% 517 5,778 ($ 1,748) $ 3,654 ($ 3,654) S0 SO $1,000 0 S 1,000) $O 370% (23.9%) $11,433 Total Period Costs Net Margin $ 1,000) (S 7,402) $ 7,470) (S 2,930) S 5,441) Other (Fees, Write Offs, TQM) ? EBIT O Interest T 4 Profit Sharing ? Net Profit ? | (17.6%) 32,687.97 $20000 $3,654.18 1,000.00 Able Amont Anew Labor Material Inventory Carrying Costs Depreciation Research&Development; Marketing Administrative/Other Net MarginExplanation / Answer
There is no exact right or wrong answer to this question, as this also depends on which stage the company in question is. For example, Uber's income statement is still in red, but it is not necessarily going in the wrong direction as it is investing for the future.
However, if you assume that the company in question is already an established firm (not a start up), then yes, the red on this income statement is definitely a drain on the company's resources.
We can try and get it back in black by noting & acting on the following:
It might not be an overnight journey, but rationalizing the spend based on the above points would ensure that the red numbers get back to black!