Answer – Profit and Loss Statement

• Lesson
• Exercise
• Answer

This is the suggested answer to the Profit and Loss Statement exercise on Colorado Ricardo Mountain Bikes.

Revenue

4,000 bikes x $1,200 = $4,800,000.

Cost of Goods Sold and Gross Profit

4,000 bikes x $700 variable cost = $2,800,000 cost of goods sold. Gross profit: $4,800,000 – $2,800,000 = $2,000,000.

Operating Expenses and Operating Profit

Fixed costs of $1,800,000 (factory rent, salaries, admin) are deducted from gross profit: $2,000,000 – $1,800,000 = $200,000 operating profit.

This thin margin is exactly what the Contribution Analysis exercise examines in more detail, by working out how close Colorado Ricardo now sits to its break-even point.