Contribution Margin - Formating an Income Statement
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Shown below is an income statement in the traditional format for a firm with a sales volume of 20,000 units.
Revenues $160,000
Cost of goods sold ($16,000 + $3.20/unit) 80,000
Gross profit $80,000
Operating expenses:
Selling ($4,500 + $1.40/unit) 32,500
Administration ($7,500 + $1.00/unit) 27,500
Operating income $20,000
a. Prepare an income statement in the contribution margin format.
b. Calculate the contribution margin per unit and the contribution margin ratio.
c. Calculate the firm's operating income (or loss) if the volume changed from 20,000 units to
1. 25,000 units
2. 11,000 units
d. Refer to your answer to part a when total revenues were $160,000. Calculate the firm's operating income (or loss) if unit selling price and variable expenses do not change, and total revenues
1. Increase by $18,000.
2. Decrease by $12,000.
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Solution Summary
The solution is provided in a separate excel file attached. It contains all parts of these income statement and operating income questions with workings and explanatory notes given. Some answers are verified with an alternative methods.
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