5. Precious Pets is a small e-tail business specialized in the sale of exotic pe

Question

5. Precious Pets is a small e-tail business specialized in the sale of exotic pet gifts and accessories over the Web. The business is owned by a sole proprietor and operated out of her home. Results of last year are shown below: Precious Pets Income Statement For the Year Ended December 31 Sales Revenue (7,000 units sold) $987,000 Cost of Goods Sold ($95 per unit) (665,000) Gross Profit 322,000 Operating Expenses: Marketing expenses (6% of sales) (59,220) Web site maintenance expenses ($16,520 + 4% of sales) (56,000) Other administrative salaries expenses (10,000) Packaging expenses ($1 per unit) (7,000) Operating Income $189,780 Required: A) Prepare the income statement using the contribution margin format. ($216,300)

Explanation / Answer

Answer:

Income Statement using the Contribution Margin

For the Year Ended December 31

Sales Revenue (Unit Sold 7,000)

$987,000

Variable Expenses:

Cost of Goods Sold

$665,000

Marketing Expenses

$59,220

Website maintenance expenses

$39,480

Packing Expenses

$7,000

Total Variable Cost

$770,700

Contribution Margin

(Sales - Total Variable Cost)

$216,300

Fixed Expenses:

Website maintenance expenses

$16,520

Other administrative salaries expenses

$10,000

Total Fixed Expenses

$26,520

Operating Income

(Contribution - Total Fixed Cost)

$189,780

Income Statement using the Contribution Margin

For the Year Ended December 31

Sales Revenue (Unit Sold 7,000)

$987,000

Variable Expenses:

Cost of Goods Sold

$665,000

Marketing Expenses

$59,220

Website maintenance expenses

$39,480

Packing Expenses

$7,000

Total Variable Cost

$770,700

Contribution Margin

(Sales - Total Variable Cost)

$216,300

Fixed Expenses:

Website maintenance expenses

$16,520

Other administrative salaries expenses

$10,000

Total Fixed Expenses

$26,520

Operating Income

(Contribution - Total Fixed Cost)

$189,780

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