The following income statements illustrate different cost structures for two competing companies:
Income Statements
Company Name
Campbell Benson
Number of customers (a) 81 81
Sales revenue (a x $220) $ 17,820 $ 17,820
Variable cost (a x $175) N/A (14,175)
Variable cost (a x $0) 0 N/A
Contribution margin 17,820 3,645
Fixed cost (14,175) 0
Net income $ 3,645 $ 3,645
Required:
1. Reconstruct Campbell’s income statement, assuming that it serves 162 customers when it lures 81 customers away from Benson by lowering the sales price to $120 per customer.
2. Reconstruct Benson’s income statement, assuming that it serves 162 customers when it lures 81 customers away from Campbell by lowering the sales price to $120 per customer.