Question

“I’ll never understand this accounting stuff,” Blake Dunn yelled, waving the income statement he had just received from his accountant in the morning mail. “Last month, we sold 2,000 stuffed State University mascots and earned $6,565 in operating income. This month, when we sold 3,000 I thought we’d make $9,848. But this income statement shows an operating income of $11,615! How can I ever make plans if I can’t predict my income? I’m going to give Janice one last chance to explain this to me,” he declared as he picked up the phone to call Janice Miller, his accountant.

“Will you try to explain this operating income thing to me one more time?” Blake asked Janice. “After I saw last month’s income statement, I thought each mascot we sold generated $3.28 in net income; now this month, each one generates $3.87! There was no change in the cost we paid for each mascot, so I don’t understand how this happened. If I had known I was going to have $11,615 in operating income, I would have looked more seriously at adding to our product line.”

Taking a deep breath, Janice replied, “Sure, Blake. I’d be happy to explain how you made so much more operating income than you were expecting.”

(b)

Correct answer iconYour answer is correct.

Using the following income statements, prepare a contribution margin income statement for March. (Round per unit answers to 2 decimal places, e.g. 52.75.)

		February		March
Sales revenue		$25,000		$37,500
Cost of goods sold		10,000		15,000
Gross profit		15,000		22,500
Rent expense		1,500		1,500
Wages expense		3,500		5,000
Shipping expense		1,100		1,650
Utilities expense		750		750
Advertising expense		1,000		1,400
Insurance expense		585		585
Operating income		$6,565		$11,615

(c)

Correct answer Your answer is correct.

Blake plans to sell 1,500 stuffed mascots next month. How much operating income can Blake expect to earn next month if he realizes his planned sales? (Round per unit to 2 decimal places and final answer to 0 decimal places, e.g. 5,275.)

Operating income

4,040

Can someone please explain to me why this is the answer.

The section before this was a comprehensive income statement for march just in case that information was relevant.

the per unit for advertising was .40 and 1.50 for wages and it showed was correct on the CIS.

I could not calculate that way so i decided to see what the FC were I got this:

12.50(1500)-7.45(1500)- FC= 4,040 -------> FC = 3,535

I just don't know how they got to it while using the 1,500 and the VC of .40 and 1.50

I used the FC to answer the next question so I know the 3535 is right as well as the CM of 7.45 If you can please clarify, thank you.

Answer 1

Income statement February March Sales Units 2000 3000 Sales 12.5 25000 37500 Variable Costs 7.45 - 14900 -22350 Gross Margin 10100 15150 Fixed costs Rent 1500 Utilities Expense 750 Insurance expense 585 Wages Expense 500 Advertising Expense 200 Total fixed cost -3535 -3535 Operating profit 6565 11615

Calculation of fixed portion of Wages and Advertising expense Wages 2000 3000 1500 Variable portion 1.5 3000 4500 2250 Balance Fixed portion 500 500 5001 Total 3500 5000 2750 2000 3000 1500 800 600 Advertising Variable portion 0.4 Balance Fixed portion Total 1200 200 200 200 1000 1400 800

1500 18750 5 7500 0.55 825 1.5 2250 600 0.4 - 11175 7.45) 7575 Sales Units Sales Variable Costs: Cost of goods sold Shipping expenses Wages Expense Advertising Expense Gross margin Fixed costs Rent Utilities Expense Insurance expense Wages Expense Advertising Expense Total Costs Operating profit 1500 750 585 500 2001 -3535 4040

12.5 7.45 1500 18750 - 11175 7575 Sales Units Sales Variable Costs Gross Profit Fixed costs Rent Utilities Expense Insurance expense Wages Expense Advertising Expense 1500 750 585 500 200 -3535 4040 5 0.55 Calculation of Variable costs Cost of goods sold Shipping expenses Wages Expense Advertising Expense Total 1.5 0.4 7.45

Wages expense and Advertising expenses are given as mixed cost. I calculated the Fixed portion from the variable cost as provided by you. as 1.50 and 0.40 and the total cost.