Prepare a contribution margin format income statement; calculate break-even poin
ID: 2349601 • Letter: P
Question
Prepare a contribution margin format income statement; calculate break-evenpoint Presented here is the income statement for Big Surf, Inc., for the month of
June:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $130,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,000
Gross pro? t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21 ,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,500
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,500)
Based on an analysis of cost behavior patterns, it has been determined that the company's
contribution margin ratio is 25%.
Required:
a. Rearrange the preceding income statement to the contribution margin format.
b. If sales increase by 10%, what will be the ?rm
Explanation / Answer
a.
sales
130,000
variable costs
97500
contribution margin
32,500
fixed expenses
36,000
operating loss
-3,500
(note contribution margin = 130,000*.25 = 32,500)
b.
sales
143,000
variable costs
107250
contribution margin
35,750
fixed expenses
36,000
operating loss
-250
(note: sales = 130,000*1.10 = 143,000; contribution margin = 143,000*.25 = 35,750)
Answer: Loss of $250
c.
break even point = fixed costs/cm ratio = 36,000/.25 = $144,000
answer: $144,000
sales
130,000
variable costs
97500
contribution margin
32,500
fixed expenses
36,000
operating loss
-3,500