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 market¬ ing 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.

Sales revenue. Cost of goods sold.. PRECIOUS PETS Income Statement Year Ended December 31, 2009 $ 987,000 (665,000) V 322,000 Gross profit............. Operating expenses: Selling and marketing expenses. Web site maintenance expenses. Other operating expenses. Total operating expenses. Operating income.............. $61,000 $6,000 25 17,000 901- (134,000) $ 188,000