Contribution Income Statement Sales (16,000 units) ……………………….. 128,000 Variable expenses ……………………… 80,000 Contribution Margin ………………… 48,000...

Contribution Income Statement
Sales (16,000 units) ………………………..	128,000
Variable expenses ………………………	80,000
Contribution Margin …………………	48,000
Fixed expenses …………………………	12,000
Net Operating Income ……………….	36,000

Jackpot company sells a single product, has provided its contribution format income statement for June.

Required:

Prepare Contribution Income Statement assuming that the business expects an increase in its total sales (as revenue) by 10% and decrease in variable cost per unit by $3. (2.5 marks)

Refer to the original data, how much is the total sales which the business needs to generate to earn a target profit of $60,000, verify your answer by preparing contribution income statement. (1.5 marks)

Refer to the original data and part b, calculate the percentage of increase in total profit. (1 mark)

Solutions

Expert Solution

the business expects an increase in its total sales (as revenue) by 10% and decrease in variable cost per unit by $3.

Contribution Income Statement

SALES ---------128000+(128000*10/100)------------- 140800

V,C -------------- (16000*3)---------------------- ------- 48000

CONTRIBUTION MARGIN ------------------------------ 92800

FIXED COST--------------------------------------------------- 12000

OPRTATING INCOME------------------------------------- 80800

B) how much is the total sales which the business needs to generate to earn a target profit of $60,000, verify your answer by preparing contribution income statement.

Sales to Achieve a Target Income = (Total Fixed Costs + Target Income) / Contribution Margin Ratio

CM RATIO =Contribution Margin /SALES =48000/128000 = 0.375

SALES = (12000+60000) /.375 = 192000

Contribution Income Statement

SALES ---------------------- ------------------------------------- 192000

V,C -------------- (80000/128000)*192000-------- ------- 120000

CONTRIBUTION MARGIN ------------------------------ 72000

FIXED COST--------------------------------------------------- 12000

OPRTATING INCOME------------------------------------- 60000

C) (PROFIT 2 - PROFIT 1) /PROFIT 1

{(80800-36000) /36000 }*100 =124.44%

ekkarill92 answered 10 months ago

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