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 7,600 units. Cost formulas also are shown Revenues Cost of goods sold ($5,800 Gross proft $ 34,900 $2/unit) 21,000 $13,900 1,930 Selling ($1,170+$0.1/unit) Administration ($3,850+$0.2/unit) 5,370 Operating income 6,600 Required: Prepare an income statement in the contribution margin format. S 34,900 Variable expenses Cost of goods sold Administrative expenses 15,200 1,520 16,720 Total variable expenses Contribution margin Fixed expenses Cost of goods sold Selling expenses Administrative expenses 18,180 5,800 1.170 3,850 10,820 Total fixed expenses Operating income $ 7,360

Explanation / Answer

Answers a) Statement of calaculation of contribution margin per unit and contribution margin ratio if sales volume is 7,600 units Amount($) Amount per unit($) Revenue(A) 34900 4.59 Variable expenses Variable cost of goods sold 15200 2.00 Administrative expenses 1520 0.2 Total variable expenses(B) 16720 2.20 Contribution margin(A)-(B) 18180 2.39 Contribution margin ratio= contribution margin/Revenue = 52% 1.Calculation of Firm's operating income(or loss) if the sales volume is 11,400 units $ Total contribution margin (11400*$2.39/unit) 27246 Total fixed expenses (Note) 10820 Operating income (or loss) (27246-10820) 16426 Note: Firm's fixed expenses would be constant irrespective of the volume of sale. 2.Calculation of Firm's operating income(or loss) if the sales volume is 3,800 units Total contribution margin (3800*$2.39/unit) 9082 Total fixed expenses 10820 Operating income (or loss) (9082-10820) $(1,738.00) d.1 Statement of showing firm's operating income (or loss) if revenue is increased by $13,500 and volume of sales is remain same 7,600 unots. Amount($) Amount per unit($) Revenue(A) (34900+13500) 48400 6.37 Variable expenses Variable cost of goods sold 15200 2 Administrative expenses 1520 0.2 Total variable expenses(B) 16720 2.2 Contribution margin(A)-(B)           31,680           4.17 Total fixed expenses 10820 Operating income (or loss)           20,860 d.2 Statement of showing firm's operating income (or loss) if revenue is decreased by $2,500 and volume of sales is remain same 7,600 units Amount($) Revenue(A) (34900-2500) 32400 Variable expenses Variable cost of goods sold (7600*$2/unit) 15200 Administrative expenses (7600*$0.2/unit) 1520 Total variable expenses(B) 16720 Contribution margin(A)-(B) 15680 Total fixed expenses 10820 Operating income (or loss) (15680-10820) 4860

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