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Considering Income Statements for Three Companies

See the attached file for clarity.

Income statements for three companies are provided below:
Company A
Company B
Company C

Sales (10 units)
$600 (A)
$600 (B)
$600 (C)

Less variable costs
400 (A)
250 (B)
0 (C)

Less fixed costs
100 (A)
250 (B)
500 (C)

Net income
$100 (A)
$100 (B)
$100 (C)

a) Prepare new income statements for the firms assuming each sells one unit less (i.e. each firm sells 9 units)
b) Briefly describe the effect of cost structure on profitability, including recommendations for each company given the current economic environment, as you understand it.


Solution Preview

Please see attached file for answers.

The cost structure of an organization significantly affects its profitability. For example, the proportion of its costs into variable and fixed affects its profitability specifically when sales are down. Look at ...

Solution Summary

This solution is comprised of a detailed response which considers the cost structure of three different companies and constructs an accompanying income statement. The income statement is provided in an attached Word document.