Presented here is the income statement for Big Shot Inc. for the month of May: Sales .

Question:

Presented here is the income statement for Big Shot Inc. for the month of May:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $65,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        56,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $ 9,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       14,000
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $ (5,000)


Based on an analysis of cost behavior patterns, it has been determined that the company’s contribution margin ratio is 20%.


Required:

a. Rearrange the preceding income statement to the contribution margin format.

b. If sales increase by 30%, what will be the firm’s operating income?

c. Calculate the amount of revenue required for Big Shot to break even.

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
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Related Book For  book-img-for-question

Accounting What the Numbers Mean

ISBN: 978-1260565492

12th edition

Authors: David Marshall, Wayne McManus, Daniel Viele

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