Question

What is Net Income for the Following?

Revenue $ 1,200,000.00

Construction Expenses 900,000.00

Administrative overhead 200,000.00?

Answer 1

Simply put, the net income may be calculated as the excess of revenues over any expenses.

Hence, in this case, in the absence of any other information, net income would be:

Revenues = $1,200,000.00   

Less: Construction Expenses = $ (900,000.00)

Less: Administrative overhead = $ (200,000.00)

Net Income = $ 1,00,000

Explanation:

Net income, or net earnings is the excess of revenues over cost of goods sold, administrative/general, maintenance and selling overheads, operating expenses, interest, depreciation, tax, research and other relevant expenses. To explain such costs briefly:

Cost of goods sold refer to all expenses directly related to the production of goods. They factor in costs of raw materials and direct labor needed to create a product or service.

Overheads refers to the expenses that are required to carry out operations of the business, but do not include the direct costs associated with creation of a product or service. They can be fixed, variable, or semi-variable/fixed. Hence, they are indirect expenses such as rent, research & development, advertising, etc.

Administrative overheads are the costs incurred for day-to-day management of a business such as office rent, salaries, directors’ fees, utility, bank charges, and more.