Shown here is an income statement in the traditional format for a firm with a sa
ID: 2440571 • Letter: S
Question
Shown here is an income statement in the traditional format for a firm with a sales volume of 7,500 units. Cost formulas also are shown:
Revenues
$
34,100
Cost of goods sold ($5,600 + $2.15/unit)
21,725
Gross profit
$
12,375
Operating expenses:
Selling ($1,170 + $0.10/unit)
1,920
Administration ($3,650 + $0.20/unit)
5,150
Operating income
$
5,305
Required:
a. Prepare an income statement in the contribution margin format.
Contribution Margin Income Statement
Revenue
$34,100
Variable expenses:
Cost of goods sold
$16,125
Selling expenses
750
Administrative expenses
1,500
Total variable expenses
18,375
Contribution margin
15,725
Fixed expenses:
Cost of goods sold
5,600
Selling expenses
1,170
Administrative expenses
3,650
Total fixed expenses
10,420
$5,305
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 7,500 units to 11,250 units. (Do not round intermediate calculations.)
c-2. Calculate the firm's operating income (or loss) if the volume changed from 7,500 units to 3,750 units. (Do not round intermediate calculations.)
Refer to your answer to part a for total revenues of $34,100.
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 $12,500. (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 $3,500. (Round intermediate calculations to 2 decimal places.)
Revenues
$
34,100
Cost of goods sold ($5,600 + $2.15/unit)
21,725
Gross profit
$
12,375
Operating expenses:
Selling ($1,170 + $0.10/unit)
1,920
Administration ($3,650 + $0.20/unit)
5,150
Operating income
$
5,305
Explanation / Answer
Answers
A
Contribution margin
$ 15,725.00
B
Units
7500
C = A/B
Contribution margin per unit
$ 2.10
D
Sales
$ 34,100.00
E = A/D
Contribution Margin ratio
46.11%
Contribution Margin Income Statement
No. of units
7500
11250
3750
Original Data [Req ‘a’]
Requirement “c- 1”
Requirement “c- 2”
Revenue
$ 34,100.00
$ 51,150.00
$ 17,050.00
Variable expenses:
Cost of goods sold
$ 16,125.00
$ 24,187.50
$ 8,062.50
Selling expenses
$ 750.00
$ 1,125.00
$ 375.00
Administrative expenses
$ 1,500.00
$ 2,250.00
$ 750.00
Total variable expenses
$ 18,375.00
$ 27,562.50
$ 9,187.50
Contribution margin
$ 15,725.00
$ 23,587.50
$ 7,862.50
Fixed expenses:
Cost of goods sold
$ 5,600.00
$ 5,600.00
$ 5,600.00
Selling expenses
$ 1,170.00
$ 1,170.00
$ 1,170.00
Administrative expenses
$ 3,650.00
$ 3,650.00
$ 3,650.00
Total fixed expenses
$ 10,420.00
$ 10,420.00
$ 10,420.00
Net Operating Income
$ 5,305.00
$ 13,167.50
$ (2,557.50)
Working
A
Contribution margin
$ 15,725.00
B
Net Operating Income
$ 5,305.00
C = A/B
Degree of Operating Leverage
2.964184731
Working and Answer:
Working
Answer d-1
Answer d-2
A
Increase (Decrease) in Revenue
$ 12,500.00
$ (3,500.00)
B
Original Sales Revenue
$ 34,100.00
$ 34,100.00
C = (A/B)x100
% Increase (Decrease) In Sales Revenue
36.66%
-10.26%
D
Degree of Operating Leverage
2.964184731
2.964184731
E = C x D
% Increase (Decrease) in Operating Income
108.66%
-30.42%
F
Original Operating Income
$ 5,305.00
$ 5,305.00
G = F + (FxE)
New Operating Income
$ 11,069.30
$ 3,691.00
A
Contribution margin
$ 15,725.00
B
Units
7500
C = A/B
Contribution margin per unit
$ 2.10
D
Sales
$ 34,100.00
E = A/D
Contribution Margin ratio
46.11%
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