Prepare a contribution margin income statement (Learning Objective 6)}

Precious Pets is a small e-tail business specializing in the sale of exotic pet gifts and accessories over the Web. The business is owned by a sole proprietor and operated out of her home. Results for 2009 are shown below:

For internal planning and decision-making purposes, the owner of Precious Pets would like to translate the company's income statement into the contribution margin format. Since Precious Pets is an e-tailer, all of its cost of goods sold is variable. A large portion of the selling and marketing expenses consists of freight-out charges ( \(\$ 19,000\) ), which were also variable. Only \(20 \%\) of the remaining selling and marketing expenses and \(25 \%\) of the Web site expenses were variable. Of the other operating expenses, \(90 \%\) were fixed.
Based on this information, prepare Precious Pets' contribution margin income statement for 2009 .

PRECIOUS PETS Income Statement Year Ended December 31, 2009 Sales revenue, $ 987,000 Cost of goods sold.......... (665,000) Gross profit.. 322,000 Operating expenses: Selling and marketing expenses... $61,000 Web site maintenance expenses 56,000 Total operating expenses. Other operating expenses Operating income......... 17,000 134,000 $ 188,000