CB Markets imports and sells small bear-shaped piñatas. In planning for the comi
ID: 2342738 • Letter: C
Question
CB Markets imports and sells small bear-shaped piñatas. In planning for the coming year, the company's owner is evaluating several scenarios. For each scenario under consideration, prepare a contribution margin income statement showing the anticipated operating income. Consider each scenario independently. Last year's income statement is as follows:
Total
Per Unit
$600,000
$12.00
350,000
7.00
250,000
$5.00
175,000
$75,000
Required
a.The sales price increases by 10% and sales volume decreases by 5%.
b.The sales price increases by 10% and variable cost per unit increases by 5%.
c.The sales price decreases by 10% and sales volume increases by 20%.
d.Fixed expenses increase by $20,000.
e.The sales price increases by 10%, variable cost per unit increases by 10%, fixed expenses increase by $25,000, and sales volume decreases by 10%.
Total
Per Unit
Sales revenue$600,000
$12.00
Variable expenses350,000
7.00
Contribution margin250,000
$5.00
Fixed expenses175,000
Operating income$75,000
Explanation / Answer
Per Unit No of units Total Sales revenue 12.00 50,000 600,000 Variable expenses 7.00 50,000 350,000 Contribution margin 5.00 250,000 Fixed expenses 175,000 Operating income 75,000 Scenario A The sales price increases by 10% and sales volume decreases by 5%. Per Unit No of units Total Sales revenue 13.20 47,500 627,000 Variable expenses 7.00 47,500 332,500 Contribution margin 6.20 294,500 Fixed expenses 175,000 Operating income 119,500 Scenario B The sales price increases by 10% and variable cost per unit increases by 5%. Per Unit No of units Total Sales revenue 13.20 50,000 660,000 Variable expenses 7.35 50,000 367,500 Contribution margin 5.85 292,500 Fixed expenses 175,000 Operating income 117,500 Scenario C The sales price decreases by 10% and sales volume increases by 20%. Per Unit No of units Total Sales revenue 10.80 60,000 648,000 Variable expenses 7.00 60,000 420,000 Contribution margin 3.80 228,000 Fixed expenses 175,000 Operating income 53,000 Scenario D .Fixed expenses increase by $20,000 Per Unit No of units Total Sales revenue 12.00 50,000 600,000 Variable expenses 7.00 50,000 350,000 Contribution margin 5.00 250,000 Fixed expenses 195,000 Operating income 55,000 Scenario E The sales price increases by 10%, variable cost per unit increases by 10%, fixed expenses increase by $25,000, and sales volume decreases by 10%. Per Unit No of units Total Sales revenue 13.20 45,000 594,000 Variable expenses 7.70 45,000 346,500 Contribution margin 5.50 247,500 Fixed expenses 200,000 Operating income 47,500