Question

ACCT 2301 Contribution Income Statements Handout #10 Flint Company operates a boutique clothing boutique clothing store, which purchases men's and women's specialty apparel. Flint Company reported the following operating results for 2012: Income Statement Sales revenue Cost of goods sold Gross margin Employee commissions and bonuses (5% of sales) Depreciation expense Salaries expense Shipping and delivery expense (2% of sales) Advertising expense Net income $2,000,000 (1.200.000) $ 800,000 ( 100,000) (150,000) (260,000) 40,000) 80,000) $ 170,000 Required Part 1: Prepare an income statement for Flint Company using the contribution margin format. You will need to make an educated guess as to which costs/expenses behave as fixed costs vs. variable cost. Required Part 2: Estimate the amount of Net Income for the following year if Sales revenue and Its sold are expected to increase by 20%. 128

Answer 1

Part 1:

Income Statement
Sales		$2,000,000
Less: Variable costs
Cost of goods sold	$1,200,000
Employee commissions and bonuses	$100,000
Shipping and delivery expense	$40,000	$1,340,000
Contribution margin		$660,000
Less: Fixed costs
Depreciation expense	$150,000
Salaries expense	$260,000
Advertising expense	$80,000	$490,000
Net income		$170,000

Part 2: If sales is increased by 20% then the net income is;

Contribution margin ratio = (Contribution margin ÷ Sales revenue) x 100

= (660,000/2,000,000) x 100

= 33%

Net income = (Sales x contribution ratio) - Total fixed costs

= [(2,000,000 x 120%) x 33%] - 490,000

= ($2,400,000 x 33%) - $490,000

= $792,000 - $490,000

= $302,000