Datura, Ltd.

Contribution Margin Income Statement

For the year ended December 31, 2014

Sales Revenue* $13, 500, 00

Less variable costs:

Purchases 6,000,000

Distribution 2,115,000

Sales commissions 1,410,000

Total variable costs 9,525,000

Contribution margin $ 3,975,000

Less fixed costs:

Distribution 985,000

Selling 1,184,000

General and Admin. 871,875

Total fixed costs 3,040,875

Operating Income 934,125

*In 2014, Datura sold 15,000 sets of pottery.

As noted in Parts One and Two, Datura Ltd., sold 15,000 sets of pottery in 2014. For the next year, 2015, Daturas strategic planning team targeted sales of 15,000 sets of pottery, reduced the selling price to $890 per set, increased sales commissions to 12 percent of the selling price, and decreased fixed distribution costs by 10 percent and variable distribution costs by 4 percent. It was assumed that all other costs would stay the same.

Based on the analysis of these changes, Daturas president is concerned that the proposed strategic plan will not meet her goal of increasing Daturas operating income by 10 percent over last years income and that the operating income will be less than last years income. She has come to you for a spreadsheet analysis of the proposed strategic plan and for the analysis of a special order she just received from an Australian distributor for 4,500 sets of pottery. The orders selling price, variable purchases cost per unit and sales commission will be the same as the rest of the business, but the variable distribution costs will be $160 per unit. Fixed costs will be unaffected by the special order.

REQUIRED:

1. Calculate the total contribution margin from the Australian Sales. 2. Prepare a revised budgeted contribution margin income statement for 2015 that includes the Australian order. Does Datura need the Australian sales to achieve

its targeted operating income for 2015?