EXERCISE 6-1 Preparing a Contribution Format Income Statement

No.1
Contribution Income statement Sales for 10,100
Total Per Unit
Sales (10,100 units) $ 353,500 $ 35.00
Less Variable expenses $ 202,000 $ 20.00
Contribution margin $ 151,500 $ 15.00
Less Fixed expenses $ 135,000
Net operating income $ 16,500

No.2
Contribution Income statement Sales for 9,900
Total Per Unit
Sales (9,900 units) $ 346,500 $ 35.00
Less Variable expenses $ 198,000 $ 20.00
Contribution margin $ 148,500 $ 15.00
Less Fixed expenses $ 135,000
Net operating income $ 13,500

No.3
Contribution Income statement Sales for 9,000
Total Per Unit
Sales (9,000 units) $ 315,500 $ 35.00
Less Variable expenses $ 180,000 $ 20.00
Contribution margin $ 135,500 $ 15.00
Less Fixed expenses $ 135,000
Net operating income $ 0

EXERCISE 6-5 Compute the Break-Even Point

1. Sales = Variable Expenses + Fixed Expenses + Profits

$ 15Q = $12Q + $ 4,200 + $0

$ 3Q = $ 4,200
Q = $ 4,200 ÷ $ 3 per woven basket
Q = $ 1,400 woven basket

2. $ 1,400 woven basket × $ 15 per woven basket = $ 21,000

Sales = Variable Expenses + Fixed Expenses + Profits

X = 0.80X + $ 4,200 + $ 0
0.20X = $ 4,200
X = $ 4,200 ÷ 0.20
X = $ 21,000

3. Break-even point in units sold = Fixed Expenses

Unit contribution margin

= $ 4,200
$ 3 woven basket

= 1,400 woven basket

4. Break-even point in total sales dollars = Fixed Expenses

CM ratio

= $ 4,200
0.20

= $ 21,000