E6-35A Prepare a contribution margin income statement (Learning Objective 6)

Two Lizards is a specialty pet gift store selling exotic pet-related items through its website. Two Lizards has no physical store; all sales are through its website.

Results for last year are shown next:

For internal planning and decision-making purposes, the owner of Two Lizards would like to translate the company’s income statement into the contribution margin format. Since Two Lizards is web-based, all of its cost of goods sold is variable. A large portion of the selling and marketing expenses consists of freight-out charges ($20,400), which were also variable. Only 20% of the remaining selling and marketing expenses and 25% of the website expenses were variable. Of the other operating expenses, 90% were fixed.
Based on this information, prepare Two Lizards’ contribution margin income statement for last year.

12 Two Lizards Traditional Income Statement (Absorption Costing) For the Year Ended December 31 D 3 4 5 Sales revenue 6 Less: Cost of goods sold 7 Gross profit 8 Less operating expenses: $ 1,014,000 665,000 $ 349,000 9 Selling and marketing expenses $ 61,000 10 11 Website maintenance expenses Other operating expenses 59,500 18,400 138,900 12 Operating income $ 210,100 13