EXHIBIT 1-7 Comparing Traditional and Contribution Format Income Statements for Merchandising Companies (all numbers are given) Traditional Format Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling Administrative Net operating income Contribution Format $12,000 Sales $12,000 6,000 Variable expenses: 6,000 Cost of goods sold $6,000 Variable selling 600 $3,100 Variable administrative. 400 7,000 1,900 5,000 Contribution margin 5,000 $ 1,000 Fixed expenses: Fixed selling 2,500 Fixed administrative 1,500 4,000 Net operating income $ 1,000 For a manufacturing company, the cost of goods sold would include some variable costs, such as direct materials, direct labor, and variable overhead, and some fixed costs, such as fixed manufacturing overhead. Income statement formats for manufacturing companies will be explored in greater detail in a subsequent chapter. Beginning Ending Cost of goods sold merchandise + Purchases- merchandise inventory inventory Beginning Cost of goods sold merchandise + Purchases inventory Ending merchandise inventory $7,000 + $3,000 $6,000 - $4,000 1. Now change all of the dollar amounts in the data area of your worksheet so that it looks like this: A B 1 Chapter 1: Applying Excel 2 3 Data 4 Sales 69 69,000 56 Variable costs: Cost of goods sold $ 34,500 7 Variable selling $ 3,450 8 Variable administrative $ 3,250 6 Fixed costs: 10 Fixed selling $ 2,500 11 Fixed administrative $ 1,500 If your formulas are correct, you should get the correct answers to the following questions. (a) What is the gross margin now? Gross margin (b) What is the net operating income now? (b) What is the net operating income now? Net operating income (c) What is the contribution margin now? Contribution margin 2. Suppose that sales are 14% higher as shown below: A 1 Chapter 1: Applying Excel 2 3 Data 4 Sales B $ 78,660 56 Variable costs: Cost of goods sold $ 39,330 7 Variable selling $ 3,933 2. Suppose that sales are 14% higher as shown below: 1 A Chapter 1: Applying Excel B 2 3 Data 4 Sales $ 78,660 5 Variable costs: 6 Cost of goods sold $ 39,330 7 Variable selling $ 1A 3,933 8 Variable administrative $ 3,705 9 Fixed costs: 10 Fixed selling $ 2,500 11 Fixed administrative $ 1,500 Enter this new data into your worksheet. Make sure you enter all of the new data - not just the sales. (a) What is the gross margin now? Gross margin Enter this new data into your worksheet. Make sure you enter all of the new data - not just the sales. (a) What is the gross margin now? Gross margin (b) What is the net operating income now? Net operating income (c) What is the contribution margin now? Contribution margin (d) When sales increase by 14%, which of the following should also increase by 14% in a merchandising company? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) Variable cost Fixed cost Gross margin 7 Contribution margin Net operating income (e) When sales increase by 14%, which of the following should increase by more than 14% in a merchandising company? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) Variable cost Fixed cost Gross margin Contin HE BIG VIC Drawer, JIE LILA DIE UUA WILT U Mutativ IR VIVUULE a LIELA HIGIK JUI BLUTTELL DE BI MIC Required information Variable cost ?Fixed cost 7 Gross margin 7 Contribution margin Net operating income (e) When sales increase by 14%, which of the following should increase by more than 14% in a merchandising company? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.) Variable cost Fixed cost Gross margin 7 Contribution margin Net operating income