Shown here is an income statement in the traditional format for a firm with a sa

Question

Shown here is an income statement in the traditional format for a firm with a sales volume of 7,900 units. Cost formulas also are shown: Revenues $ 34,200 Cost of goods sold ($5,700 + $2.20/unit) 23,080 Gross profit $ 11,120 Operating expenses: Selling ($1,180 + $0.09/unit) 1,891 Administration ($3,550 + $0.20/unit) 5,130 Operating income $ 4,099 Required:

a. Prepare an income statement in the contribution margin format.

b. Calculate the contribution margin per unit and the contribution margin ratio. (Do not round intermediate calculations. Round contribution margin per unit to 2 decimal places.)

c-1. Calculate the firm's operating income (or loss) if the volume changed from 7,900 units to 11,850 units. (Do not round intermediate calculations.)

c-2. Calculate the firm's operating income (or loss) if the volume changed from 7,900 units to 3,950 units. (Do not round intermediate calculations.) Refer to your answer to part a for total revenues of $34,200.

d-1. Calculate the firm’s operating income (or loss) if unit selling price and variable expenses per unit do not change and total revenues increase by $11,000. (Round intermediate calculations to 2 decimal places.)

d-2. Calculate the firm's operating income (or loss) if unit selling price and variable expenses per unit do not change and total revenues decrease by $2,500. (Round intermediate calculations to 2 decimal places.)

Explanation / Answer

calculation in $ a) 7900 Unit Per Unit sale 34200             4.33 less cost of goods sold -23080           -2.92 gross profit 11120             1.41 less: Selling expense -1891           -0.24 Administration expense -5130           -0.65 operating income 4099             0.52 b) contribution margin per unit: sales-variable cost sales per unit 4.33 less: cost of goods sold -2.2 gross profit per unit 2.13 Selling expense per unit -0.09 Administration expense per unit -0.2 contribution per unit 1.84 contribution margin ratio: contribution/sales 1.84/4.33 0.424942 c1) (11850 units) Assuming fixed cost would remain same irrespective of output ) sales value 51310.5 11850*4.33 less cost of goods sold -31770 5700+(2.2*11850) gross profit 19540.5 less: Selling expense -2246.5 1180+0.09*11850 Administration expense -5920 (3550+(0.2*11850)) operating income 11374 c2) 3950 units sales value 17103.5 3950*4.33 less cost of goods sold -14390 5700+(2.2*3950) gross profit 2713.5 less: Selling expense -1535.5 1180+0.09*3950 Administration expense -4340 (3550+(0.2*3950)) operating loss -3162 d1) if total revenue increase by 11000 45200 34200+11000 S.P.per unit 4.33 total sale qty 10438.8 45200/4.33 10439 rounded off 10439 units rounded off sales value 45200.87 3950*4.33 less cost of goods sold -28665.8 5700+(2.2*10439) gross profit 16535.07 less: Selling expense -2119.51 1180+0.09*10439 Administration expense -5637.8 (3550+(0.2*10439)) operating profit 8777.76 d2) if total revenue decrease by 2500 31700 34200-2500 4.33 s.p per unit total sales qty 7321.016166 31700/4.33 7321 qty (rounded off) sales value 31699.93 7321*4.33 cost of goods sold -21806.2 5700+(2.2*7321) gross profit 9893.73 Selling expense -1838.89 1180+0.09*7321 Administration expense -5014.2 (3550+(0.2*7321)) operating profit 3040.64

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