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

Exercise 73

Prepare a contribution margin format income statement; calculate breakeven point Presented here is the income statement for Big Surf, Inc., for the month of May:

Sales	$ 65,000
Cost of goods sold	53,500
Gross profit	$ 11,500
Operating expenses	14,000
Operating loss	$ (2,500)

Based on an analysis of cost behavior patterns, it has been determined that the company’s contribution margin ratio is 30%.

Required:

a.Rearrange the preceding income statement to the contribution margin format.

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b. If sales increase by 10%, what will be the firm’s operating income?

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c. Calculate the amount of revenue required for Big Surf, Inc., to break even.

Step 1 of 5

a)

Contribution margin format for the month of May for Big Surf, Inc.:

Step 1:

Since contribution margin ratio is 30%, therefore the variable cost is 70% of the sales. Also, operating loss is given as ($2,500) therefore Fixed cost can be calculated as follows:

Substitute:

Therefore, the fixed cost is $22,000.