Question:

Baskin Promotions, Inc. sells T-shirts decorated for a variety of concert performers. The company has

developed the following budget for the coming year based on a sales forecast of 90,000 T-shirts:

Sales

$ 1,584,00

Cost of Goods Sold

931,500

Gross Profit

652,500

Operating Expenses ($100,000 is fixed)

458,200

Operating Income

194,300

Income Taxes (30% of Operating income)

58,290

Net Income

136,010

Cost of goods sold and variable operating expenses vary directly with sales, and the income tax rate is 30%

at all levels of operating income.

If the concert season is slow due to poor weather, Baskin estimates that sales could fall to as low as 70,000

T-shirts.

Answer:

(652,500-90,000) X 70,000 - 378,600 = 128,900

128,900 - (.3 X 128,900) = 90,230.

93,000-90,230=2,770

My question: Where did the 378,600 come from in the equation: (652,500-90,000) X 70,000 - 378,600 = 128,900

I can't figure it out and would like to understand the solution for my exam.

Thanks!