Shown here is an income statement in the traditional format for a firm with a sales volume

Question:

Shown here is an income statement in the traditional format for a firm with a sales volume of 18,000 units:

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $108,000
Cost of goods sold ($10,000 + $2.80/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          60,400
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 47,600
Operating expenses:
Selling ($2,200 + $1.00/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             20,200
Administration ($5,000 + $0.40/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          12,200
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 15,200


Required:

a. Prepare an income statement in the contribution margin format.

b. Calculate the contribution margin per unit and the contribution margin ratio.

c. Calculate the firm’s operating income (or loss) if the volume changed from 15,000 units to

1. 20,000 units.
2. 10,000 units.

d. Refer to your answer to part a when total revenues were $108,000. Calculate the firm’s operating income (or loss) if unit selling price and variable expense per unit do not change and total revenues

1. Increase by $15,000.

2. Decrease by $10,000.

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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