Question

Prepare a contribution margin format income statement; answer what-if questions Shown here is an income statement in the traditional format for a firm with a sales volume of 18,000 units: $108,000 60,400 $ 47,600 Revenues... Cost of goods sold ($10,000 + $2.80/unit) Gross profit Operating expenses: Selling ($2,200+ $1.00/unit) Administration ($5,000+ $0.40/unit) Operating income 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.

d. Refer to your answer to part a when total revenues were $108,000. Calculate the firm's operating income (or loss) if unit selling price and variable expense per unit do not change and total revenues:

1. Increase by $15,000

2. Decrease by $10,000

Answer 1

Contribution format Income Statement
Sales Revenues		108000
Less: variable costs
Cost of goods sold	50400
Selling Expenses	18000
Admin expenses	7200
Total Variable expenses		75600
Contribution Margin		32400
Less: Fixed costs
Cost of goods sold	10000
Selling Expenses	2200
Admin expenses	5000
Total Fixed costs		17200
Net Operating Income		15200
b.CM per unit	1.8
CM Ratio = CM/Sales	30%
c.Operating Income at 20,000 units = 1.8*20,000-17200 = $18800
Operating income at 10,000 units = 1.8*10,000 - 17200 = $800
d.Operating income when total revenues increase by 15000 = (108000+15000)*30% - 17200 = $19700
Decrease by 10,000 = (108000-10,000)*0.3 - 17200 = $12,200