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Homework answers / question archive / Muscat Contribution Income Statement is presented below [ 7 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
Muscat Contribution Income Statement is presented below [ 7 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. (2 marks)
ANSWER 1
A.) SALE PRICE PER UNIT 36000/600 = 60
VARIABLE EXPENSE PER UNIT 12000/600 = 20
INCREASE IN VARIABLE COST =20*1.10 = 22
| CONTRIBUTION INCOME STATEMENT | |
| $ | |
| SALES 650 UNITS | 39000 |
| VC 22*650 | 14300 |
| CONTRIBUTION | 24700 |
| FIXED COST | 6000 |
| NET INCOME | 18700 |
B.) BREAKEVEN POINTS = FIXED COST/SP-VC
=6000/60-20
=150 UNITS OR 150*$60= $9000
C.) IF TARGET PROFIT IS $26000
LET SALES BE X UNITS
NOW TOTAL SALES = 60X
VC=20X
FIXED COST 6000
SO, 60X-20X-6000=26000
40X=32000
X=800 UNITS
| CONTRIBUTION INCOME STATEMENT | |
| $ | |
| SALES 800 UNITS | 48000 |
| VC 20*800 | 16000 |
| CONTRIBUTION | 32000 |
| FIXED COST | 6000 |
| NET INCOME | 26000 |
