P Company Regularly Sells Merchandise to Its 80%-Owned Subsidiary, S

question 15

Multiple Choice

P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation. In 2016, P sold merchandise that cost $192,000 to S for $240,000. Half of this merchandise remained in S's December 31, 2016 inventory. During 2017, P sold merchandise that cost $300,000 to S for $375,000. Forty percent of this merchandise inventory remained in S's December 31, 2017 inventory. Selected income statement information for the two affiliates for the year 2017 is as follows: Consolidated sales revenue for P and Subsidiary for 2017 are:

• A) $2,325,000.
• B) $2,400,000.
• C) $2,565,000.
• D) $2,700,000.

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Definitions:

Contribution Margin

The amount of revenue remaining after deducting variable costs, which can be used to cover fixed costs and contribute to profit.

Fixed Costs

Costs that do not change with the level of production output, such as rent, salaries, and insurance.

Variable Selling

Costs that change in proportion to the volume of goods or services sold.

Administrative Expense

Costs related to the general operation of a company that are not directly tied to a specific department or product, like salaries of executive officers and support staff.