A firm expects to sell 25,000 units of its product at $11 per unit and to incur variable costs per unit of $6. Total fixed costs are $70,000. The pretax net income is:

a. $55,000.

b. $90,000.

c. $125,000.

d. $150,000.

e. $380,000.

a. $55,000

Explanation:

Pretax profit is net profit before tax.

Profit equals sales - (fixed cost + variable costs)

In this case:

sales = selling price x sales volume

= $ 11 x 25,000

= $ 275,000.00

Fixed cost = $ 70,000

Variable costs=$6 x 25,000 = $ 150,000.00

profits = $275,0000 - ($70,000+$150,000)

=$275,000-220,000

=$55,000.00