Question

Shown here is an income statement in the traditional format for a firm with a sales volume of 7,800 units. Cost formulas also are shown: Revenues Cost of goods sold ($5,600+$2.25/unit) Gross profit Operating expenses $34,500 23,150 $11,350 Selling ($1,190 +$0.10/unit) Administration ($3,900 $0.20/unit) 1,970 5,460 $ 3,920 Operating income Required a. Prepare an income statement in the contribution margin format. Contribution Margin Income Statement Revenue Variable expense Cost of goods sold Selling expenses Administrative expenses Total variable expenses Contribution margin Fixed expenses Cost of goods sold Selling expenses Administrative expenses Total fixed expenses Operating income

Answer 1

a)	Contribution Margin income statement
	Revenue				34,500
	Variable expenses
	Cost of goods sold			17550
	Selling expense			780
	Administrative expenses			1560
	Total variable expense				19890
	Contribution margin				14,610
	Fixed expenses:
	Cost of goods sold			5,600
	Selling expense			1,190
	Administrative expenses			3,900
	Total fixed expenses				10,690
	operating income				3,920
b)	Contribution margin per unit				1.87
	Contribution margin ratio				42%
c-1)	Operating income		11225
c-2	operating loss		-3385
d)-1)	operating income		8578.26
d-2)	operating income		2437.83