APPLY THE CONCEPTS:

a contribution margin income statement

Assume that you are part of the accounting team for Epstein Computing. The company has only one product that sells for $20 per unit. Epstein estimates total fixed costs to be $8,900. Epstein estimates direct materials cost of $2.40 per unit, direct labor costs of $3.00 per unit, and variable overhead costs of $0.60 per unit. The CEO would like to see what the gross margin and operating income will be if 1000 units are sold in the next period. a contribution margin income statement.

Epstein Computing Contribution Margin Income Statement:

Sales $_____

Less: Variable costs$_____

Contribution margin$______

Less: Fixed costs$______

Operating income $______

APPLY THE CONCEPTS: Calculate the break-even point in sales dollars for Epstein Computing

Further analysis of Epstein Computing's fixed costs revealed that the company actually faces annual fixed overhead costs of $9,800 and annual fixed selling and administrative costs of $4,200. Variable cost estimates are correct: direct materials cost, $2.40 per unit; direct labor costs, $3.00 per unit; and variable overhead costs, $0.60 per unit. At this time, the selling price of $20 will not change. Complete the following formulas for the revised fixed costs. Enter the ratio as a percentage.

Contribution Margin per Unit=$_____-$______= $______

Contribution Margin Ratio=$_____=____%

______

Now complete the formulas for (1) the break-even point in sales dollars and (2) the units sold at the break-even point. To calculate this, divide the break-even point in sales dollars by the unit selling price.

Break-Even Point in Sales Dollars=$_____=$_____

______%

Units Sold at Break-Even Point=units

Assume that the number of units that Epstein sold exceeded the break-even point by one (1).

How much would operating income be?

$_______

What would operating income be if the units sold exceeded the break-even point by five (5) units?

$_______