Shown here is an income statement in the traditional format for a firm with a sales volume of 20,000 units:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160,000
Cost of goods sold ($16,000 + $3.20/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,000
Operating expenses:
Selling ($4,500 + $1.40/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,500
Administration ($7,500 + $1.00/unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,500
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,000
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. 25,000 units.
2. 11,000 units.
d. Refer to your answer to part a when total revenues were $160,000. Calculate the firm’s operating income (or loss) if unit selling price and variable expenses do not change, and total revenues
1. Increase by $18,000.
2. Decrease by $12,000.