Question

The following income statements illustrate different cost structures for two competing companies:

Income Statements
Kent Trent
Number of Customers (a) 88 88
Sales revenue (a x $250) $22,000 $22,000
Variable cost (a x $180) N/A $(15,840
Variable cost (a x $0) 0 N/A
Contribution margin 22,000 6,160
Fixed cost $(15,840) 0
Net income $6,160 $6,160
(a) Reconstruct Kent's income statement, assuming that it serves 176 customer when it lures 88 customers away from Trent by lowering the sales price to $150 per customer.

(b) Reconstruct Trent's income statement, assuming that it serves 176 customers when it lures 88 customer away fro Kent by lowering the sales price to $150 per customer.

Answer 1

Answer:

Kent net income is $10,560.00

Trent net loss is -$5,280.00  

Explanation:

It would be more appropriate to show the reconstructed income statements for both companies using spreadsheet.

The point is that Trent variable cost per unit is $180  and by lowering price per unit to $150 in order to lure away customers from Kent,Trent would incur losses as found in the revised income statements attached.