Prepare a contribution margin format income statement; answer what-if questions
ID: 2349599 • Letter: P
Question
Prepare a contribution margin format income statement; answer what-ifquestions Shown here is an income statement in the traditional format for a firm
with a sales volume of 10,000 units. Cost formulas also are shown:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,000
Cost of goods sold ($9,000 ? $2.60/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Gross pro? t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,000
Operating expenses:
Selling ($2,300 ? $.1 5/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,800
Administration ($4,700 ? $.25/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,200
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,000
c. Calculate the ?rm
Explanation / Answer
Variable cost per unit = 2.60 + .25 + .15 = 3.00
Fixed costs = 9000 + 2300 + 4700 = 16,000
1.
revenue
70000
variable costs
42000
contribution margin
28000
fixed costs
16000
net income
12000
(note, variable costs = 14,000*3 = 42,000)
2.
revenue
30000
variable costs
18000
contribution margin
12000
fixed costs
16000
net income/loss
-4000
(note: variable costs = 6,000*3 = 18,000)
revenue
70000
variable costs
42000
contribution margin
28000
fixed costs
16000
net income
12000