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
Advertising expense $190,000 per quarter
Sales Commissions $ 6% of sales
Administrative salaries $ 100,000 per quarter
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
First 20,000 190,000
Second 22,000 205,000
Third 27,000 240,000
Fourth 23,000 220,000
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.
This tutorial provides guidelines for preparing an income statement.