Question

CB Markets imports and sells small bear-shaped piñatas. In planning for the coming year, the company's owner is evaluating several scenarios. For each scenario under consideration, prepare a contribution margin income statement showing the anticipated operating income. Consider each scenario independently. Last year's income statement is as follows:

	Total	Per Unit
Sales revenue	$600,000	$12.00
Variable expenses	350,000	7.00
Contribution margin	250,000	$ 5.00
Fixed expenses	175,000
Operating income	$ 75,000

Required

a.The sales price increases by 10% and sales volume decreases by 5%.

b.The sales price increases by 10% and variable cost per unit increases by 5%.

c.The sales price decreases by 10% and sales volume increases by 20%.

d.Fixed expenses increase by $20,000.

e.The sales price increases by 10%, variable cost per unit increases by 10%, fixed expenses increase by $25,000, and sales volume decreases by 10%.

Answer 1

	Per Unit	No of units	Total
Sales revenue	12.00	50,000	600,000
Variable expenses	7.00	50,000	350,000
Contribution margin	5.00		250,000
Fixed expenses			175,000
Operating income			75,000
Scenario A
The sales price increases by 10% and sales volume decreases by 5%.
	Per Unit	No of units	Total
Sales revenue	13.20	47,500	627,000
Variable expenses	7.00	47,500	332,500
Contribution margin	6.20		294,500
Fixed expenses			175,000
Operating income			119,500
Scenario B
The sales price increases by 10% and variable cost per unit increases by 5%.
	Per Unit	No of units	Total
Sales revenue	13.20	50,000	660,000
Variable expenses	7.35	50,000	367,500
Contribution margin	5.85		292,500
Fixed expenses			175,000
Operating income			117,500
Scenario C
The sales price decreases by 10% and sales volume increases by 20%.
	Per Unit	No of units	Total
Sales revenue	10.80	60,000	648,000
Variable expenses	7.00	60,000	420,000
Contribution margin	3.80		228,000
Fixed expenses			175,000
Operating income			53,000
Scenario D
.Fixed expenses increase by $20,000
	Per Unit	No of units	Total
Sales revenue	12.00	50,000	600,000
Variable expenses	7.00	50,000	350,000
Contribution margin	5.00		250,000
Fixed expenses			195,000
Operating income			55,000
Scenario E
The sales price increases by 10%, variable cost per unit increases by 10%, fixed expenses increase by $25,000, and sales volume decreases by 10%.
	Per Unit	No of units	Total
Sales revenue	13.20	45,000	594,000
Variable expenses	7.70	45,000	346,500
Contribution margin	5.50		247,500
Fixed expenses			200,000
Operating income			47,500