Question

Presented here is the income statement for Fairchild Co. for March: Sales $ 84,000 Cost of goods sold 40,500 Gross profit $ 43,500 Operating expenses 30,500 Operating income $ 13,000 Based on an analysis of cost behavior patterns, it has been determined that the company's contribution margin ratio is 34%.

Required: a. Rearrange the preceding income statement to the contribution margin format.

Calculate operating income if sales volume increases by 6%. (Do not round intermediate calculations.

Calculate the amount of revenue required for Fairchild to break-even

Answer 1

Income statement (Contribution margin)
Sales	$84,000
Less:
Variable cost	55440
Contribution	$28,560
Less: Fixed Cost	15560
Operating Income	$13,000
Income statement , if sales volume increase by 6%(Contribution margin)
Sales	$89,040	($ 84000*106%)
Less:
Varaible cost	58766.4	(55440*106%)
Contribution	$30,274
Less: Fixed Cost	13000
Operating Income	$17,274
Break even revenue	Fixed cost/Contribution margin
	$ 15560/34%
	45764.71

Notes:

Calculation of Total Expense
Cost of goods sold	$40,500
Add: Operating expenses	30500
Total Expenses	71000

Contribution=	Sales*Contribution margin ratio
	$ 84000*34%
	28560
Variable cost=	Sales-Contribution
	$ 84000-28560
	55440

Bifurcation of Fixed and variable expense
Total Expenses	71000
Less: Variable expenses	55440
Fixed cost	15560
Fixed cost remain same , hence will not change with the increase in revenue.