In this memorandum, the focus will be on
discussing the Serious Reader Company’s variable costs and fixed costs, as well
as the net income (2016). It will help understand the impact of changes in
different variable factors in order to maximize the profitability of the
company. The Serious Reader Company is a relatively new yet reputed online
retailer that sells books to its global customers. The company has both the
fixed costs and variable costs and wants to evaluate the net income via the
change in its selling prices and variable costs in order to understand the
effect of different levels of costs on the income or net earnings.
It should be noticed that different companies
or organizations make efforts to prepare a different type of income statement
for internal purposes (2015). This is done to improve the operating
profitability to an extent (2018). The contribution margin is a concept that
helps decide whether or not low prices should be allowed in specific situations
or scenarios. If at some points, the contribution margin is negative or below
the average, then it would be unfair to continue selling the product at the
same price. In addition, it helps determine the profit that is likely to
increase with different levels of the sale. Another idea to use this concept is
to decide which products should be sold on a priority basis. This is done when
they use a common bottleneck resource, and it allows the organization to give
preference to the product that gives the best contribution.
References
The Income Statement/Statement
Of Comprehensive Income. (2016). UK GAAP Financial Statement
Disclosures Manual, 67-82. doi:10.1002/9781119283393.ch4
Financial Statement Reporting:
The Income Statement. (2015). CFO Fundamentals, 25-43. doi:10.1002/9781119205111.ch3
Forecasting the Income
Statement. (2018). Financial Forecasting and Decision Making.
doi:10.1002/9781119514282.ch6
