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    Calculating Net Income: A Formula Analysis

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    Please help me understand and explain this problem:

    NI = [U * (P-VCu)] - FC

    Example: We own a small ice cream shop. What are the variables in this equation?
    How is variable cost defined and what might be some variable costs for our ice cream shop?
    How is fixed costs defined and what might be some fixed costs for our ice cream shop?

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    Solution Preview

    NI = [U * (P-VCu)] - FC

    The above formula is meant to be used to calculate Net Income, and can be used within any business or operations. In order to understand the concepts of fixed and variable cost in this equation, consider the following:

    NI= Net Income
    U= Units
    P= Price
    VCu= Variable costs / unit
    FC= Fixed costs

    NI is considered the dependent variable, because its value is dependent on the values of the equation. U, P, VCu, and FC are all considered ...

    Solution Summary

    The expert calculates net income for a formula analysis.