Prepare a contribution margin format income statement; answer what-if questions
ID: 2349600 • 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
d. Refer to your answer to part a for total revenues of $50,000. Calculate the
?rm
Explanation / Answer
From part A, CM ratio = 20,000/50,000 = .4
1.
sales
65,000
variable costs
39,000
contribution margin
26,000
fixed costs
16,000
net income
10,000
(note Contribution margin = 65,000*.4 = 26,000)
2.
sales
37,000
variable costs
22,200
contribution margin
14,800
fixed costs
16,000
net income
-1,200
(note: contribution margin = 37,000*.4 = 14,800)
sales
65,000
variable costs
39,000
contribution margin
26,000
fixed costs
16,000
net income
10,000