Exercise 2-124 Using fixed cost as a competitive business strategy The following income statements illustrate different cost structures for two competing companies: Income Statements Company Name Hill Creek Number of customers (a) Sales revenue (a x $200) Variable cost (a x $140) Variable cost (a x $0) Contribution margin Fixed cost Net income 200 $ 40,000 N/A 0 40,000 (28,000) $ 12,000 200 $ 40,000 (28,000) N/A 12,000 0 $ 12,000 Required a. Reconstruct Hill's income statement, assuming that it serves 400 customers when it lures 200 customers away from Creek by lowering the sales price to $120 per customer. b. Reconstruct Creek's income statement, assuming that it serves 400 customers when it lures 200 customers away from Hill by lowering the sales price to $120 per customer. c. Explain why the price-cutting strategy increased Hill Company's profits but caused a net loss for Creek Company