Question

2-25 Cost estimation; contribution format income statement (LO 2, 3) J Bryant, Ltd. is a local coat retailer. The store's accountant prepared the following income statement for the month ended January 31: Sales revenue $750,000 300,000 Cost of goods sold Gross margin Less operating expenses Selling expense Administrative expense 450,000 $23,560 49,500 73,060 $376,940 Net operating income Bryant sells its coats for $300 each. Selling expenses consist of fixed costs plus a commission of $6 per coat. Administrative expenses consist of fixed costs plus a variable component equal to 5% of sales. Required a. Prepare a contribution format income statement for January. b. Using the format y = mx + b, develop a cost formula for total expenses. c. If 2,700 coats are sold next month, what is the expected total contribution margin?

Answer 1

a)	Contribution format income statement
	Sales					750,000
	Variable cost
	Cost of goods sold		120		300,000
	Selling expense		6		15000
	Administrative expense		15		37500
	total variable cost		141			352,500
	Contribution margin					397,500
	Fixed expense
	Selling expense				8560
	Administrative expense				12000
	Total fixed exoense					20560
	Net income					376,940
b)	Y	=	mx	+	b
	Y	=	141 x	+	20560
	where y is total cost
	m is variable cost per unit
	x is activity level
	b is fixed cost
C)	Expected total contribution margin
	2,700 *(300-141)
	429300