Cost Behavior Prepare a contribution margin income statement Five Macaws is a specialty pet gift shop selling exotic pet-related items online. The shop has no physical location. Results for last year are shown next: Five Macaws Traditional Income Statement (Absorption Costing) For the Year Ended December 31 $ Sales revenue 990,000 673,000 Less: Cost of goods sold Gross profit $ 317,000 Less operating expenses: Selling and marketing expenses 65,500 58,000 Website maintenance expenses 17,600 141,100 Other operating expenses 175,900 Operating income For internal planning and decision-making purposes, the owner of Five Macaws would like to translate the company's income statement into the contribution margin format. Since Five Macaws is online only, all of its cost of goods sold is variable. A large portion of the selling and marketing expenses consists of freight-out charges ($19,400), 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. 2 Five Macaws 3 Contribution Margin Income Statement 4 For the Year Ended December 31 6 Sales revenue 7 Less: Variable expenses Variable cost of goods sold 8 Variable selling and marketing expenses 9 Variable web site maintenance expenses 10 Other variable operating expenses 11 12 Contribution margin 13 Less: Fixed expenses Fixed selling and marketing expenses 14 Fixed web site maintenances expenses 15 Other fixed operating expenses 16 17 Operating income 18 19