Prepare a contribution margin income statement (also called a variable-costing i

ID: 2341134 • Letter: P

Question

Prepare a contribution margin income statement (also called a variable-costing income statement) for the manufacturing company for the upcoming year. Key in proper headings.

Check figure: Operating profit (operating income) of $14,295,000.

Compute the company’s contribution margin per unit and contribution margin percentage for the upcoming year. The contribution margin percentage is calculated as contribution margin per unit / selling price per unit or as total contribution margin / total revenue. Make these calculations below your income statement. Clearly label these calculations.

Calculate the company’s breakeven point in units for the upcoming year. Make this calculation below your contribution margin calculations. Use Excel’s “round” function to round up to the nearest whole number. To do this, move your curser to the cell beside the decimal number and key in the following formula: =ROUNDUP(cell reference,0). The italicized cell reference means you need to key in the cell where the decimal number is located (e.g., F12). The number 0 means zero decimal places. Clearly label this calculation.

Calculate the company’s breakeven point in sales dollars for the upcoming year. Make this calculation below your breakeven calculation in units and use the company’s contribution margin percentage to make this calculation. Clearly label this calculation.

PARAMETERS FOR BASELINE CASE The following numbers are estimates for the upcoming year for a manufacturing company. Since the company is effective at implementing a JIT inventory system, assume there is no beginning or ending inventory. No. of units sold 120,000 Selling price per unit $240.00 Fixed Expenses Variable Expenses (per unit sold Production costs: Direct materials $18.00 Direct labor 36.00 Factory overhead $2,160,000 24.00 Marketing expenses: Sales salaries and commissions 540,000 7.50 Advertising 360,000 Miscellaneous mktg. expenses 108,000 Administration expenses: Office salaries 720,000 Supplies 105,000 1.50 Miscellaneous admin. expenses 72,000 TOTAL EXPENSES $4,065,000 $87.00

Explanation / Answer

Solution:

Part 1 – Contribution Margin Income Statement

PARAMETERS FOR BASELINE CASE

Contribution Margin / Variable Costing Income Statement

Sales Revenue (120,000 Units @ $240)

$28,800,000

Variable Cost:

Direct Materials (120,000 Units @ 18)

$2,160,000

Direct Labor (120,000 Units @ $36)

$4,320,000

Variable factory Overhead (120,000*$24)

$2,880,000

Variable selling expenses (120,000*7.50)

$900,000

Variable Administrative Expenses (120,000*1.50)

$180,000

Total Variable Cost

$10,440,000

Contribution Margin (Sales - Total Variable Cost)

$18,360,000

Total Fixed Costs

$4,065,000

Operating Profit

$14,295,000

Part 2 –

Contribution Margin Per Unit = Unit selling price – Unit total variable cost

= $240 - $87

= $153 per unit

Contribution Margin Percentage = Unit Contribution Margin / Unit Selling Price x 100

= $153 / $240 * 100

= 63.75%

Part 3 –

Break Even Point in units = Total Fixed Costs / Unit Contribution Margin

= $4,065,000 / $153

= 26,569 Units

Part 4 –

Break Even Point in dollars = Total Fixed Costs / Contribution Margin Percentage

= $4,065,000 / 63.75%

= $6,376,471

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