Question

Refer to the Pennington Products information below. Pennington Products has two product lines: R-100 and R-200. Revenue and cost information for each of the product lines are as follows: R-100 R-200 Selling price per unit $45 $75 Variable costs per unit $20 $35 Traceable fixed expenses $170 000 $380 000 Pennington has common fixed expenses of $250 000 per year. Last year, the company produced and sold 30 000 units of R-100 and 20 000 units of R-200. What is the company's overall net income?

		$1 260 000
		$1 000 000
		$750 000
		$900 000

Answer 1

	R-100	R-200	Total
Sales revenue	1350000	1500000	2850000
Less: Variable expenses	600000	700000	1300000
Contribution margin	750000	800000	1550000
Less: Traceable fixed expenses	170000	380000	550000
Product margin	580000	420000	1000000
Less: Common fixed expenses			250000
Overall net income			750000
Option 3 $750000 is correct
Calculations:
Sales revenue:
R-100 = 30000*45 = $1350000
R-200 = 20000*75 = $1500000
Variable expenses:
R-100 = 30000*20 = $600000
R-200 = 20000*35 = $700000