Question

Shown here is an income statement in the traditional format for a firm with a sales volume of 7,600 units. Cost formulas also are shown:

Revenues	$	34,600
Cost of goods sold ($5,700 + $2.10/unit)		21,660
Gross profit	$	12,940
Operating expenses:
Selling ($1,190 + $0.09/unit)		1,874
Administration ($3,550 + $0.15/unit)		4,690
Operating income	$	6,376

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 contribution margin per unit to 2 decimal places.)

c-1. Calculate the firm's operating income (or loss) if the volume changed from 7,600 units to 11,400 units. (Do not round intermediate calculations.)

c-2. Calculate the firm's operating income (or loss) if the volume changed from 7,600 units to 3,800 units. (Do not round intermediate calculations.)

Refer to your answer to part a for total revenues of $34,600.

d-1. Calculate the firm’s operating income (or loss) if unit selling price and variable expenses per unit do not change and total revenues increase by $12,000. (Round intermediate calculations to 2 decimal places.)

d-2. Calculate the firm's operating income (or loss) if unit selling price and variable expenses per unit do not change and total revenues decrease by $4,000. (Round intermediate calculations to 2 decimal places.)

Answer 1

a. Prepare an income statement in the contribution margin format.

income statement
Revenues		34600
Less Variable Expenses
Cost of Goods Sold	15960
Selling Expenses	684
Admin Expenses	1140
Total Variable Expenses		17784
Contribution Margin		16816
Less Fixed Expense
Cost of Goods Sold	5700
Selling Expenses	1190
Admin Expenses	3550
Total Fixed Expense		10440
Operating Profit		6376

Calculate the contribution margin per unit and the contribution margin ratio

contribution margin per unit =Contribution/No of Units sold

=16816/7600

=$2.21 Per unit

Contribution margin ratio=16816/34600 =48.60%

c-1. Calculate the firm's operating income (or loss) if the volume changed from 7,600 units to 11,400 units

Contrbution -Fixed Expense

=2.21*11400-10440

=$14784

Calculate the firm's operating income (or loss) if the volume changed from 7,600 units to 3,800 units.

=2.21*3800-10440

= -$2032.00

Calculate the firm’s operating income (or loss) if unit selling price and variable expenses per unit do not change and total revenues increase by $12,000.

Increase in Contribution =$12000*48.60% =5832.00

operating income =5832.00 +Current Profit 6376

=$12208.00

Calculate the firm's operating income (or loss) if unit selling price and variable expenses per unit do not change and total revenues decrease by $4,000

Decrease in Contribution =$4000*48.60% =1944

operating income =Current Profit 6376-1944

=$4432.00