To determine the correct variable expenses for the CVP (Cost-Volume-Profit) income statement, we need to understand the components of the income statement and how they are calculated.
The CVP income statement typically consists of three main components: sales revenue, variable expenses, and fixed expenses.
In this scenario, we are given that 100,000 wrenches are sold for $12 per unit, resulting in a total sales revenue of 100,000 x $12 = $1,200,000.
Net income is given as $200,000, which represents the difference between total revenue and total expenses (variable and fixed).
Fixed costs are provided as $300,000, which are expenses that do not change with the level of production or sales.
To calculate the variable expenses, we need to subtract the fixed costs from the total expenses (fixed + variable) to find the variable expenses.
Since we are given that net income is $200,000, we can deduce that total expenses would be equal to:
Total Expenses = Total Revenue - Net Income
Total Expenses = $1,200,000 - $200,000 = $1,000,000
Now we can calculate the variable expenses by subtracting the fixed costs from the total expenses:
Variable Expenses = Total Expenses - Fixed Costs
Variable Expenses = $1,000,000 - $300,000 = $700,000
Therefore, the correct answer to report as variable expenses in the CVP income statement is (a) $700,000.