Question 3.

The income statement for Big Franks Bicycle Emporium for the month just ended is as follows:

Sales 300,000

Cost of goods sold 140,000

Gross margin 160,000

Less operating expenses

Selling expenses 40,000

Depreciation 25,000

Admin expenses 65,000

Total operating expenses 130,000

Net income 30,000

Additional information:

On average Frank sells his bikes for $300 each

The sales department has variable expenses of $12 per bike sold

Depreciation expense is unaffected by changes in the sales level

Admin costs are 70% fixed and 30% variable

Prepare an income statement for the month just ended using the contribution margin approach.