Prepare a contribution margin format income statement; answer what-ifquestions Shown here is an income statement in the traditional format for a firm with a sales volume of 20,000 units. Cost formulas also are shown:Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000Cost of goods sold ($36,000 1 $5.20/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000Gross profi t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,000Operating expenses:Selling ($9,200 1 $0.30/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,200Administration ($18,800 1 $0.50/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,800Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,000Required: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 to1. 28,000 units.2. 12,000 units.d. Refer to your answer to part a for total revenues of $200,000. Calculate the firm’s operating income (or loss) if unit selling price and variable expenses per unit do not change and total revenues1. Increase $60,000.2. Decrease $52,000.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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. Cost formulas also are shown:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000
Cost of goods sold ($36,000 1 $5.20/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000
Gross profi t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,000
Operating expenses:
Selling ($9,200 1 $0.30/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,200
Administration ($18,800 1 $0.50/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,800
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,000
Required:
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. 28,000 units.
2. 12,000 units.
d. Refer to your answer to part a for total revenues of $200,000. Calculate the firm’s operating income (or loss) if unit selling price and variable expenses per unit do not change and total revenues
1. Increase $60,000.
2. Decrease $52,000.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
