Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 71

Prepare a contribution margin format income statement; answer what-if questions Shown here 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

Required:

a.Prepare an income statement in the contribution margin format.

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b. Calculate the contribution margin per unit and the contribution margin ratio.

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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.

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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.

Step 1 of 6

a)

The Contribution margin format Income statement is given in the following spreadsheet:

Income Statement:

This statement is also called as statement of revenue and expense. Income statement is one of the three financial statements, remaining are balance sheet and cash flow statement. This income statement measures company’s financial performance for one accounting cycle. In this statement, total expenses are subtracted from total revenues. This income statement shows net income or loss for a particular period.