Question

Shown here is an income statement in the traditional format for a firm with a sales volume of 7,900 units. Cost formulas also are shown: Revenues $ 34,200 Cost of goods sold ($5,700 + $2.20/unit) 23,080 Gross profit $ 11,120 Operating expenses: Selling ($1,180 + $0.09/unit) 1,891 Administration ($3,550 + $0.20/unit) 5,130 Operating income $ 4,099 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 7,900 units to 11,850 units. (Do not round intermediate calculations.)

c-2. Calculate the firm's operating income (or loss) if the volume changed from 7,900 units to 3,950 units. (Do not round intermediate calculations.) Refer to your answer to part a for total revenues of $34,200.

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 $11,000. (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 $2,500. (Round intermediate calculations to 2 decimal places.)

Answer 1

	calculation in $
a)		7900 Unit	Per Unit
	sale	34200	4.33
less	cost of goods sold	-23080	-2.92
	gross profit	11120	1.41
less:	Selling expense	-1891	-0.24
	Administration expense	-5130	-0.65
	operating income	4099	0.52
b)	contribution margin per unit:
	sales-variable cost
	sales per unit	4.33
less:	cost of goods sold	-2.2
	gross profit per unit	2.13
	Selling expense per unit	-0.09
	Administration expense per unit	-0.2
	contribution per unit	1.84
	contribution margin ratio:
	contribution/sales	1.84/4.33
		0.424942
c1)	(11850 units) Assuming fixed cost would remain same irrespective of output )
	sales value	51310.5	11850*4.33
less	cost of goods sold	-31770	5700+(2.2*11850)
	gross profit	19540.5
less:	Selling expense	-2246.5	1180+0.09*11850
	Administration expense	-5920	(3550+(0.2*11850))
	operating income	11374
c2)	3950 units
	sales value	17103.5	3950*4.33
less	cost of goods sold	-14390	5700+(2.2*3950)
	gross profit	2713.5
less:	Selling expense	-1535.5	1180+0.09*3950
	Administration expense	-4340	(3550+(0.2*3950))
	operating loss	-3162
d1)	if total revenue increase by 11000
	45200	34200+11000
	S.P.per unit	4.33
	total sale qty	10438.8	45200/4.33
		10439	rounded off
	10439 units rounded off
	sales value	45200.87	3950*4.33
less	cost of goods sold	-28665.8	5700+(2.2*10439)
	gross profit	16535.07
less:	Selling expense	-2119.51	1180+0.09*10439
	Administration expense	-5637.8	(3550+(0.2*10439))
	operating profit	8777.76
d2)	if total revenue decrease by 2500
	31700	34200-2500
	4.33	s.p per unit
	total sales qty
	7321.016166	31700/4.33
	7321 qty (rounded off)
	sales value	31699.93	7321*4.33
	cost of goods sold	-21806.2	5700+(2.2*7321)
	gross profit	9893.73
	Selling expense	-1838.89	1180+0.09*7321
	Administration expense	-5014.2	(3550+(0.2*7321))
	operating profit	3040.64