Chapter 6, Problem 6.36AE

Prepare a contribution margin income statement (Learning Objective 6)

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:

For 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. Based on this information, prepare Five Macaws’ contribution margin income statement for last year.