Oak Hammock Company developed the following information for its bucket sales: Sa
ID: 2413072 • Letter: O
Question
Oak Hammock Company developed the following information for its bucket sales: Sales price Variable cost of goods sold Fixed cost of goods sold Variable selling expense Variable administrative expense Fixed selling expense Fixed administrative expense $6.50 per unit $1.50 per unit $26,000 10% of sales price $0.25 per unit $4,000 $3,000 For the year ended December 31, 2016, Oak Hammock Company produced and sold 15,000 buckets. Required: a. Prepare a CVP income statement using the contribution margin format for Oak Hammock Company for 2016. b. Briefly explain how this statement differs from the traditional GAAP income statement.Explanation / Answer
Solution: a. Oak Hammock Company Income Statement For the Year Ended December 31, 2016 Sales 97,500 Variable expenses Cost of goods sold 22,500 Administrative 3,750 Selling expenses 9,750 Total variable expenses 36,000 Contribution margin 61,500 Fixed expenses Cost of goods sold 26,000 Selling 4,000 Administrative 3,000 Total fixed expenses 33,000 Net income 28,500 Working Notes: Oak Hammock Company Income Statement For the Year Ended December 31, 2016 Sales [15,000 x 6.50 ] 97,500 a Variable expenses Cost of goods sold [ 15,000 x $1.50 ] 22,500 b Administrative [15,000 x 0.25 ] 3,750 c Selling expenses [15,000 x 6.50 x 10% ] 9,750 d Total variable expenses 36,000 e=b+c+d Contribution margin 61,500 f=a-e Fixed expenses Cost of goods sold 26,000 g Selling 4,000 h Administrative 3,000 i Total fixed expenses 33,000 j=g+h+i Net income 28,500 k=f-j b. The contribution margin format, present costs into two parts fixed costs & variable cost while traditional GAAP income statement presents costs into two parts which are product cost & period cost. As they both present cost in different way but overall net income will be same under both method as total cost will be same under both method. Both assumed that there is no change in beginning & ending inventories. Please feel free to ask if anything about above solution in comment section of the question.
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