Question

Shown here is an income statement in the traditional format for a firm with a sales volume of 18,000 units $234,000 63,700 $170,300 Revenues Cost of goods sold ($11,500+$2.90/unit) Gross profit Operating expenses 20,300 12,100 $137,900 Selling ($2,300+$1.00/unit) Administration ($4,900+ $0.40/unit) Operating income Required: a. Prepare an income statement in the contribution margin format Contribution Margin Income Statement Variable expenses Total variable expenses Fixed expenses Total fixed expenses b. Calculate the contribution margin per unit and the contribution margin ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Contribution margin per unit Contribution margin ratio . Caculate the frm's operating income (or loss) f the volume changed from 18.000 units to 23,000 unts.(Do not round intermediate calculations.) c-2. Calculate the firm's operating income (or loss) if the volume changed from 18,000 units to 10,000 units. (Do not round intermediate calculations.) Refer to your answer to part a when total revenues were $234,000 d-1. Calculate the firm's operating income (or loss) If unit selling price and variable expense per unit do not change and total revenues increase by $15,000. (Do not round intermediate calculations.) d-2. Calculate the firm's operating income (or loss) if unit selling price and variable expense per unit do not change and total revenues decrease by $7,500. (Do not round intermediate calculations.)

Answer 1

Answer a.

Contribution Margin Income Statement $ 234,000 Sales revenue Variable expenses: Cost of goods sold ($2.90 18,000) Selling expense ($1.00 18,000) Administration expense ($0.40 18,000) Total variable expenses Contribution margin Fixed expenses Cost of goods sold Selling expense Administration expense Total fixed expenses Operating income $ 52,200 $ 18,000 $7,200 $77,400 $ 156,600 $11,500 $2,300 $4,900 $ 18,700 $137,900

Answer b.

Contribution Margin per unit = Contribution Margin / Number of units sold
Contribution Margin per unit = $156,600 / 18,000
Contribution Margin per unit = $8.70

Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = $156,600 / $234,000
Contribution Margin Ratio = 0.6692 or 66.92%

Answer c-1.

Sales Volume = 23,000 units

Operating Income (Loss) = Sales Volume * Contribution Margin per unit - Fixed Costs
Operating Income (Loss) = 23,000 * $8.70 - $18,700
Operating Income (Loss) = $181,400

Answer c-2.

Sales Volume = 10,000 units

Operating Income (Loss) = Sales Volume * Contribution Margin per unit - Fixed Costs
Operating Income (Loss) = 10,000 * $8.70 - $18,700
Operating Income (Loss) = $68,300

Answer d-1.

Sales Revenue = $234,000 + $15,000
Sales Revenue = $249,000

Operating Income (Loss) = Sales Revenue * Contribution Margin Ratio - Fixed Costs
Operating Income (Loss) = $249,000 * 66.92% - $18,700
Operating Income (Loss) = $147,930.80

Answer d-2.

Sales Revenue = $234,000 - $7,500
Sales Revenue = $226,500

Operating Income (Loss) = Sales Revenue * Contribution Margin Ratio - Fixed Costs
Operating Income (Loss) = $226,500 * 66.92% - $18,700
Operating Income (Loss) = $132,873.80