Question

Preparing and evaluating a contribution income statement a) You are an external consultant, and providing consultancy services to VanServ Inc.. Below you will see some financial information for 2019. The owner of the company asked you to prepare a contribution income statement. b) Manager of the company has also a bonus plan (2% of the controllable contribution margin for the year is to be paid as yearly bonus). You are also asked to calculate the bonus. The contract of the manager will be renewed next year, so the owner is also wondering if you have any recommendation to improve calculation of the manager's bonus entitlement plan? Total sales Traceable, controllable, fixed costs Traceable, uncontrollable, fixed costs Non-traceable, controllable, fixed costs Non-traceable, uncontrollable, fixed costs Variable selling, general, & administrative costs Variable product costs $ 57,300,000 13,250,000 5,600,000 2,500,000 3,250,000 11,250,000 22,800,000

Answer 1

a)

Contribution Income Statement	Amount
Total Sales	$     5,83,00,000
Less-: Variable cost
Variable products cost	$     2,28,00,000
Variable selling, general & administrative costs	$     1,12,50,000
Contribution Margin	$     2,42,50,000

b)

Controllable Contribution Income Statement	Amount
Total Sales	$     5,83,00,000
Less-: Variable cost
Variable products cost	$     2,28,00,000
Variable selling, general & administrative costs	$     1,12,50,000
Contribution Margin	$     2,42,50,000
Less-: Traceable, controllable, fixed cost	$     1,32,50,000
Controllable Contribution Margin	$     1,10,00,000
Bonus@2%	$          2,20,000

Manager should try to control traceable controllable fixed cost to increase the controllable contribution margin.