Early in 2013, Lily Company (a retailing firm) sent the following income statement to its stockholders:

Required:
1. Prepare a contribution margin income statement. (Assume that the fixed components of the selling expenses and administrative expenses are $20,000 and $20,000, respectively.)
2. Interpretive Question: Why is a contribution margin income statement helpful to management?
3. Interpretive Question: How would the analysis in part (1) be different if the depreciation expense was considered a stepped cost with wide steps compared to the relevantrange?

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Lily Company Income Statement For the Year Ended December 31, 2012 Sales revenue (8,000 units) Less cost of goods sold (variable) Gross margin Operating expenses: Selling Administrative S800,000 550,000 $250,000 $ 65,000 60,000 25,000 1,500 1,500 Depreciation (fixed) Insurance (fixed) Utilities (S500 fixed and $1,000 variable) 153,000 S 97,000 Profit