Question

The total purchases of ALMA company are KD 120,000, and purchases return and allowance is 3% of total purchases.
Inventory at the end of the current year is KD 4,000, and inventory from last year is KD 3,000
ALMA compay paid freight-in costs of KD 1,200 & selling costs are 7% of its net sales. The admisnitartive expenses are estimated at KD 8000
ALMA company sold 2,300 units over the year. Its Sales returns are 600 units and sales alowoances amounted to KD 1800
The contribution margin of ALMA company is KD 100 per unit and its contribution margin ratio is 40%. prepare income statement

Answer 1

Contribution margin per unit = Contribution margin ratio * Selling price per unit
KD 100 = 0.40 * Selling price per unit
Selling price per unit = KD 250

Sales = Units sold * Selling price per unit
Sales = 2,300 * KD 250
Sales = KD 575,000

Sales returns = Units sold returned * Selling price per unit
Sales returns = 600 * KD 250
Sales returns = KD 150,000

Net sales = Sales - Sales returns - Sales allowances
Net sales = KD 575,000 - KD 150,000 - KD 1,800
Net sales = KD 423,200

Cost of goods purchased = Purchases - Purchases return and allowance + Freight-in
Cost of goods purchased = KD 120,000 - 3% * KD 120,000 + KD 1,200
Cost of goods purchased = KD 117,600

Selling costs = 7% * Net sales
Selling costs = 7% * KD 423,200
Selling costs = KD 29,624