Five Macaws is a specialty pet gift shop selling exotic pet-related items online. The shop has no physical location. Results for last year are shown next:See attachmentFor internal planning and decision-making purposes, the owner of Five Macaws would like to translate the company’s income statement into the contribution margin format. Since Five Macaws is online only, all of its cost of goods sold is variable. A large portion of the selling and marketing expenses consists of freight-out charges ($19,400), which were also variable. Only 20% of the remaining selling and marketing expenses and 25% of the website expenses were variable. Of the other operating expenses, 90% were fixed. ## Five Macaws Contribution Margin Income Statement### For the Year Ended December 31**Sales revenue****Less: Variable expenses**- Variable cost of goods sold- Variable selling and marketing expenses- Variable website maintenance expenses- Other variable operating expenses**Contribution margin** $ \text{Contribution margin: } \$ - $**Less: Fixed expenses**- Fixed selling and marketing expenses- Fixed website maintenance expenses- Other fixed operating expenses**Operating income** $ \text{Operating income: } \$ - $ This contribution margin income statement outlines the financial performance of Five Macaws for the year ended December 31. It begins with sales revenue and deducts variable expenses to determine the contribution margin. Fixed expenses are subtracted to calculate the operating income. The statement is structured to provide insights into the company's cost behavior and profitability. **Five Macaws** *Traditional Income Statement (Absorption Costing)* *For the Year Ended December 31*- **Sales revenue:** $990,000 - **Less: Cost of goods sold:** $673,000 - **Gross profit:** $317,000 **Less operating expenses:** - **Selling and marketing expenses:** $65,500 - **Website maintenance expenses:** $58,000 - **Other operating expenses:** $17,600 - **Total Operating Expenses:** $141,100 - **Operating income:** $175,900 This income statement details the financial performance of Five Macaws using absorption costing for the fiscal year ending December 31. The statement starts with total sales revenue, deducts the cost of goods sold to arrive at the gross profit, and then lists operating expenses, which are deducted to calculate the operating income.

Business entities prepare the income statement so as to know how much amount of gross profit or net profit is earned by them during the year. Gross profit =Sales -Cost of goods soldNet profit =Gross profit -Indirect expenses+Other incomes Explanation: Given selling and marketing expenses =$65500 (Out of which $19,400 consists of freight-out charges which is variable)Remaining balance =$65500 -$19400=$46100 Fixed selling and marketing expense =$46100×80%=$36880Variable selling and marketing expense =$46100×20%+$19400=$9220 +$19400=$28620 Website maintenance expenses: Variable Website maintenance expenses=$58000×25%=$14500Fixed Website maintenance expenses=$58000×75%=$43500Other operating expenses: Other variable operating expenses=$17600×10%=$1760Other Fixed operating expenses = $17600×90%=$15840