Question

a)You are an external consultant, and providing consultancy services to VanServ Inc.. Below you will see some financial information for 2019. The owner of the company asked you to prepare a contribution income statement.
b) Manager of the company has also a bonus plan (2% of the controllable contribution margin for the year is to be paid as yearly bonus). You are also asked to calculate the bonus. The contract of the manager will be renewed next year, so the owner is also wondering if you have any recommendation to improve calculation of the manager's bonus entitlement plan?
Total sales			$ 57,300,000
Traceable, controllable, fixed costs			13,250,000
Traceable, uncontrollable, fixed costs			5,600,000
Non-traceable, controllable, fixed costs			2,500,000
Non-traceable, uncontrollable, fixed costs			3,250,000
Variable selling, general, & administrative costs			11,250,000
Variable product costs			22,800,000

Answer 1

a) Contribution Income Statement contains the difference between the Sales and Variable Expenses. Below is the computation for contribution Income Statement:

Contribution Income Statement	Amount
Total Sales	$     58,300,000
Less-: Variable cost
Variable products cost	$     22,800,000
Variable selling, general & administrative costs	$     11,250,000
Contribution Margin	$     24,250,000

So Contribution Margin as per above is $24,250,000

b) In order to compute Bonus we need to exclude traceable controllable fixed cost from the contribution computed above.

Contribution Margin	$     24,250,000
Less-: Traceable, controllable, fixed cost	$     13,250,000
Controllable Contribution Margin	$     11,000,000
Bonus@2%	$          220,000

Since performance is depended upon controllable contribution margin so he should try to reduce traceable controllable contribution margin.