Question

For Franklin, Inc., sales are $1,500,000, fixed expenses are $450,000, and the contribution margin ratio is 36%. What is net income?

A) $540,000
B) $540,000
C) $960,000
D) $1,050,000

Answer 1

To calculate Franklin, Inc.'s net income, we find the total contribution margin by multiplying sales by the contribution margin ratio, which is $540,000. We then subtract fixed expenses of $450,000 from this amount to arrive at a net income of $90,000. None of the provided answer options are correct.

Step-by-step explanation:

To determine the net income for Franklin, Inc., we start by calculating the total contribution margin using the contribution margin ratio. The contribution margin is the difference between sales and variable costs and is calculated as follows:

Sales = $1,500,000

Contribution Margin Ratio = 36%

Total Contribution Margin = Sales × Contribution Margin Ratio = $1,500,000 × 0.36 = $540,000

Once we have the total contribution margin, we can calculate net income by subtracting fixed expenses from the total contribution margin. Here's the calculation:

Fixed Expenses = $450,000

Net Income = Total Contribution Margin - Fixed Expenses = $540,000 - $450,000 = $90,000

Therefore, the net income for Franklin, Inc. is $90,000, which means none of the provided options A) $540,000, B) $540,000, C) $960,000, D) $1,050,000 are correct.