Question

2. Decrease $7,000. Prepare a contribution margin format income statement; answer what if Problem 12.2 questions Shown here is an income statement in the traditional format for a firm Lo 7, 8, 9, 12 with a sales volume of 18,000 units: Revenues Cost of goods sold ($10.000 + $2.80/unit) Gross profit Operating expenses: Seling ($2.200 + $1.00/unit Administration ($5,000 $0.40/unit Operating income $100,000 60.400 $ 47,600 20,200 12 200 $ 15,200 Required: a. Prepare an income statement in the contribution margin format. b. Calculate the contribution margin per unit and the contribution margin ratio. c. Calculate the firm's operating income (or loss) if the volume changed from 15,000 units to 1. 20,000 units. 2. 10,000 units.

Answer 1

Solution: a.

Contribution Margin Income statement Sales revenue $ 108,000 Variable expense: Cost of goods sold (18,000*$2.80) 50,400 Selling expense (18,000*$1.00) 18,000 Administration exp. (18,000*$0.40) 7,200 Total variable expenses (75,600) Contribution Margin $ 32,400 Fixed expense: Cost of goods sold 10,000 Selling expense 2,200 Administration exp. 5,000 Total fixed expense (17,200) Operating Income $ 15,200

b. Contribution margin per unit = Contribution margin / number of units sold

   = $32,400 / 18,000

   = $1.80

Contribution margin ratio = Contribution margin / Revenue

   = $32,400 / 108,200

   = 0.30 or 30%

C. 1. If volume is 20,000 units:

Operating Income = $18,800 ( which can be computed as follows:)

120,000 Contribution Margin Income statement Sales revenue $ Variable expense: Cost of goods sold (20,000*$2.80) 56,000 Selling expense (20,000*$1.00) 20,000 Administration exp. (20,000*$0.40) 8,000 Total variable expenses Contribution Margin $ Fixed expense: Cost of goods sold 10,000 Selling expense Administration exp. 5,000 Total fixed expense Operating Income $ (84,000) 36,000 2,200 (17,200) 18,800

2. If volume is 10,000 units:

Operating Income = $800 (which can be computed as follows:)

60,000 Contribution Margin Income statement Sales revenue $ Variable expense: Cost of goods sold (10,000*$2.80) 28,000 Selling expense (10,000*$1.00) 10,000 Administration exp. (10,000 $0.40) 4,000 Total variable expenses Contribution Margin $ Fixed expense: Cost of goods sold 10,000 Selling expense 2,200 Administration exp. 5,000 Total fixed expense Operating Income $ (42,000) 18,000 (17,200) 800