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Homework answers / question archive / Muscat Contribution Income Statement is presented below: Total Sales (600 units) $36,000 Variable expenses $12,000 Contribution Margin $24,000 Fixed expenses $6,000 Net Income $18,000 Required: a
Muscat Contribution Income Statement is presented below: Total Sales (600 units) $36,000 Variable expenses $12,000 Contribution Margin $24,000 Fixed expenses $6,000 Net Income $18,000 Required: a. Prepare Contribution Income Statement assuming that the business expects an increase in its total sales by $3,000 and decrease in variable cost per unit by 10%. (4 marks) b. Referring to the original contribution statement, calculate BEP in dollars. (1 mark) c. Referring to the original contribution statement, how many units would have to be sold by the business to earn a target profit of $26,000. Use the equation/ formula method and verify your answer by preparing Contribution Income Statement. (2 marks)
1. Muscat Contribution Income Statement is presented below: Total Sales (600 units) $36,000 Variable expenses $12,000 Contribution Margin $24,000 Fixed expenses $6,000 Net Income $18,000 Required: a. Prepare Contribution Income Statement assuming that the business expects an increase in its total sales by $3,000 and decrease in variable cost per unit by 10%. (4 marks) b. Referring to the original contribution statement, calculate BEP in dollars. (1 mark) c. Referring to the original contribution statement, how many units would have to be sold by the business to earn a target profit of $26,000. Use the equation/ formula method and verify your answer by preparing Contribution Income Statement.
| Sales | $ 39,000 |
| Variable Costs | $ 11,700 |
| Contribution Margin | $ 27,300 |
| Fixed Costs | $ 6,000 |
| Net Operating Income | $ 21,300 |
Variable Cost per unit = $12000 / 600 = $20 per unit?
Revised Variable Cost per unit = $20 x 0.90 = $18 per unit
Revised Units sold = ($36000+3000) / 60 = 650 units
b.
Contribution Margin Ratio = $24000/36000 = 66.67%
BEP = Fixed Costs / CM Ratio
= $6000 / 66.67% = $9000
c.
Unit Contribution Margin = $24000 / 600 = $40 per unit
Units required = (Fixed Costs + Target Profit) / Unit Contribution Margin
= ($6000+26000) / 40 = 800 units
| Sales | $ 48,000 |
| Variable Costs | $ 16,000 |
| Contribution Margin | $ 32,000 |
| Fixed Costs | $ 6,000 |
| Net Operating Income | $ 26,000 |
