Chapter 12, Problem 12.20P

To determine

Concept Introduction:

Income statement

Income statement, also known as Statement of revenue and expense measures company's financial performance over an accounting period (say for a year, a quarter). In this statement, total expenses are deducted from total revenues to arrive at net income or loss for the period.

Variable expenses

The expenses which are associated with the amount of goods produced or services provided. These vary directly with the production level i.e. company's variable cost increases as the production increases and vice-a-versa.

Fixed expenses

These expenses do not vary with the level of production. They do not change with the amount of goods or services a company produces. They remain same even if the company does not produce any product or provide any service during an accounting period.

Requirement a:

Income statement in the contribution margin format

To determine

Concept Introduction:

Contribution margin

It is the difference between total revenue and variable expenses. Contribution margin equals the amount that sales exceed variable costs. It measures how efficiently a company can produce products and maintain low levels of variable cost.

  

Contribution margin, when expressed in percentage form is known as Contribution margin ratio and can be calculated as follows:

  

Variable expenses

The expenses which are associated with the amount of goods produced or services provided. These vary directly with the production level i.e. company's variable cost increases as the production increases and vice-a-versa.

Requirement b:

To calculate:

Contribution margin per unit and contribution margin ratio

To determine

Concept Introduction:

Contribution margin

It is the difference between total revenue and variable expenses. Contribution margin equals the amount that sales exceed variable costs. It measures how efficiently a company can produce products and maintain low levels of variable cost.

  

Requirement c:

To calculate:

Firm's operating income (or loss) if volume changes to

1. 20,000 units
2. 10,000 units

To determine

Concept Introduction:

Contribution margin

It is the difference between total revenue and variable expenses. Contribution margin equals the amount that sales exceed variable costs. It measures how efficiently a company can produce products and maintain low levels of variable cost.

Contribution margin, when expressed in percentage form is known as Contribution margin ratio and can be calculated as follows:

  

Requirement d:

To calculate:

Firm's operating income (or loss) if total revenue

1. Increases $15,000
2. Decreases $10,000