Question
In: Statistics and Probability
White Limited’s most recent income statement is shown below: Total Per Unit Sales (5,100 units) $...
White Limited’s most recent income statement is shown below:
| Total | Per Unit | |||||
| Sales (5,100 units) | $ | 163,200 | $ | 32 | ||
| Variable expenses | 56,100 | 11 | ||||
| Contribution margin | 107,100 | $ | 21 | |||
| Fixed expenses | 91,350 | |||||
| Operating income | $ | 15,750 | ||||
Required:
Prepare a new contribution format income statement under each of the following conditions (consider each case independently):
1. The sales volume increases by 220 units.
2. The sales volume declines by 220 units.
3. The sales volume is 4,350 units.
Solutions
Expert Solution
1. The sales volume increases by 220 units from the existing 5100 units.
The new sales volume is 5100+220=5320
- Sales = 32* 5320 = $170,240
- Variable Expense= 11*5320=$58,520
- Contribution margin = Sales - Variable Expense = 170,240-58520=$111,720
- Fixed expense=$91,350 (does not change for change in sales volume)
- Operating income = Contribution margin - Fixed expense= 111,720 -91,350 = $20,370
The new income statement is
| Total | Per Unit | |||
| Sales (5,320 units) | $ | 170,240 | $ | 32 |
| Variable expenses | 58,520 | 11 | ||
| Contribution margin | 111,720 | $ | 21 | |
| Fixed expenses | 91,350 | |||
| Operating income | $ | 20,370 | ||
2. The sales volume declines by 220 units from the existing 5100 units.
The new sales volume is 5100-220=4880 units
- Sales = 32* 4880 = $156,160
- Variable Expense= 11*4880=$53,680
- Contribution margin = Sales - Variable Expense = 156,160-53,680=$102,480
- Fixed expense=$91,350 (does not change for change in sales volume)
- Operating income = Contribution margin - Fixed expense= 102,480 -91,350 = $11,130
The new income statement is
| Total | Per Unit | |||
| Sales (4,880 units) | $ | 156,160 | $ | 32 |
| Variable expenses | 53,680 | 11 | ||
| Contribution margin | 102,480 | $ | 21 | |
| Fixed expenses | 91,350 | |||
| Operating income | $ | 11,130 | ||
3. The sales volume is 4,350 units.
- Sales = 32* 4350 = $139,200
- Variable Expense= 11*4350=$47,850
- Contribution margin = Sales - Variable Expense = 139,200-47,850=$91,350
- Fixed expense=$91,350 (does not change for change in sales volume)
- Operating income = Contribution margin - Fixed expense= 91,350-91,350 = $0
The new income statement is
| Total | Per Unit | |||
| Sales (4,350 units) | $ | 139,200 | $ | 32 |
| Variable expenses | 47,850 | 11 | ||
| Contribution margin | 91,350 | $ | 21 | |
| Fixed expenses | 91,350 | |||
| Operating income | $ | 0 | ||
This indicates that 4350 units is the sales volume at which White limited can break even.
orchestra answered 2 years agoRelated Solutions
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Verify your estimate from part (d) above by
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