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Homework answers / question archive / Contribution Income Statement is presented below [marks]: Total Sales (600 units) $36,000 Variable expenses $12,000 Contribution Margin $24,000 Fixed expenses $6,000 Net Income $18,000 Required: a

Contribution Income Statement is presented below [marks]: Total Sales (600 units) $36,000 Variable expenses $12,000 Contribution Margin $24,000 Fixed expenses $6,000 Net Income $18,000 Required: a

Accounting

Contribution Income Statement is presented below [marks]: 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. 

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b) Computation of Break even point in dollars

Break even point = Fixed cost / Contribution margin ratio

Contribution margin ratio =

( Total revenue- variable cost)÷ Total revenue

CM ratio =( $36000 - $ 12000)÷$36000

= 2÷3 or 66.67%

  Therefore , break even point = $6000÷ 66.666%

= $9000

c) Computation of units sold to earn a target profit of $26000

Number of units to be sold

=( Target profit + Fixed expenses)÷unit    contribution margin

= ($26000 + $ 6000) ÷40

= 800 units

( contribution per unit = $ 24000÷ 600=40 units )

Contribution income statement

Sales (800units × $60) $48000
Less: variable cost (800units ×$20) $16000
Contribution $32000
Less: Fixed cost $6000
Net income $26000

Working note: variable cost per unit =$12000÷600units =$20

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