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 15,500 units:

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 your answers to 2 decimal places.)

c-1. Calculate the firm's operating income (or loss) if the volume changed from 15,500 units to 20,500 units. (Do not round intermediate calculations.)

c-2. Calculate the firm's operating income (or loss) if the volume changed from 15,500 units to 7,500 units. (Do not round intermediate calculations.)

Refer to your answer to part a when total revenues were $186,000.

d-1. Calculate the firm's operating income (or loss) if unit selling price and variable expense per unit do not change and total revenues increase by $14,000. (Do not round intermediate calculations.)

d-2. Calculate the firm's operating income (or loss) if unit selling price and variable expense per unit do not change and total revenues decrease by $7,500. (Do not round intermediate calculations.)

Revenues $ 186,000 Cost of goods sold ($9,500 + $3.00/unit) 56,000 Gross profit $ 130,000 Operating expenses: Selling ($2,050 + $1.15/unit) 19,875 Administration ($4,550 + $0.35/unit) 9,975 Operating income $ 100,150

Explanation / Answer

Req A: CONTRIBUTION MARGIN INCOME STATEMENT Revenues 186000 Less: variable cost COGS 46500 Selling expense 17825 Admin Expense 5425 Contribution margin 116250 Less: fixed cost Fixed COGS 9500 Fixed Selling Expense 2050 Fixed Admin Expense 4550 Net Operating inccome 100150 Req b: Contribution earned: $ 116,250 Number of units sold: 15500 units Contribution amrgin per unit (116250/15500) = 7.50 per unit CM ratio: Contribution/ Sales *100 ($ 116250 /186000) *100 = 62.50% Req C: Revsied Sales units: 20500 units Additional units sold: 5000 units Additional contribution earned: 5000 ujnits @7.50 = $ 37500 Net operating income at 20500 units: 100150+37500 = 137650 Req C-2: Revsied Sales units: 7500 units Decrease inunits sold: 8000 units Loss of contribution: 8000*7.50= 60,000 Net operating income at 7500 units: 100150-60000 =41250 Req Additional revenue generated: $ 14000 CM ratio: 62.50% Additional contribution: 14000*62.5% = $8750 Net Operating income: $ 100150+8750 = $108,900 Req d-2 Loss of revenue: $ 7500 CM ratio: 62.50% Loss of contribution: 7500*62.50% = $4688 Net Operating income: $100,150-4688 = $95462

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