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

Exercise 75

Prepare a contribution margin format income statement; calculate break-even point Presented here is the income statement for Edwards Co. for February:

Sales	$80,000
Cost of goods sold	48,000
Gross profit	$32,000
Operating expenses	21,200
Operating income	$10,800

Based on an analysis of cost behavior patterns, it has been determined that the company’s contribution margin ratio is 35%.

Required:

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

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b. Calculate operating income if sales volume increases by 20%. (Note: Do not construct an income statement to get your answer.)

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c. Calculate the amount of revenue required for Edwards to break even.

Step 1 of 8

Contribution margin:

Contribution margin is the profit earned for each unit sold. It is calculated by deducting variable expenses of the product from the sales generated by that product. Net income or loss is calculated by deducting fixed expenses from the contribution amount.