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# Income statement

Conor Company has decided to use the contribution approach to the income statement internally for planning purposes.The company has analyzed its expenses and developed the following cost formulas:

Cost Cost Formula
Cost of goods sold \$ 25 per unit sold
Sales Commissions \$ 6% of sales
Administrative salaries \$ 100,000 per quarter
Shipping expense
Depreciation expense \$ 75,000 per quarter

Management has concluded that shipping expense is a mixed cost,containing both variable and fixed cost elements.Units sold and the related shipping expense over the last eight quarters are given below:

Quarter Units Sold Shipping Expense
Year 1:
First 20,000 190,000
Second 22,000 205,000
Third 27,000 240,000
Fourth 23,000 220,000
Year 2:
First 21,000 200,000
Second 24,000 220,000
Third 29,000 260,000
Fourth 26,000 235,000

Management would like a cost formula derived for shipping expense so that a budgeted income statement using the contribution approach can be prepared for the next quarter.

In the first quarter of year 3, the company plans to sell 25,000 units at a selling price of \$ 60 per unit.Prepare an income statement for the quarter using the contribution format.

#### Solution Summary

This tutorial provides guidelines for preparing an income statement.

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