Question

Presented here is the income statement for Fairchild Co. for March:

Sales	$	81,500
Cost of goods sold		40,000
Gross profit	$	41,500
Operating expenses		30,500
Operating income	$	11,000

Based on an analysis of cost behavior patterns, it has been determined that the company's contribution margin ratio is 28%.

Required:

1. Rearrange the preceding income statement to the contribution margin format.
2. Calculate operating income if sales volume increases by 9%.
3. Calculate the amount of revenue required for Fairchild to break even.

Answer 1

Part-a.
FairChild Co.
Contribution margin income Statement
Sales	$81,500.00
Variable expense
Variable Cost (81500*72%))	$58,680.00
Contribution Margin	$22,820.00
Fixed Expense	$11,820.00
Net Operating Income	$11,000.00

Working Note

Fixed Expense = Total Expense- Variable Expense

=(40000+30500-58680)=$11820

Part-b
FairChild Co.
Contribution margin income Statement
Sales (81500*1.09)	$88,835.00
Variable expense
Variable Cost (88835*72%))	$63,961.20
Contribution Margin	$24,873.80
Fixed Expense	$11,820.00
Net Operating Income	$13,053.80

Part-c

BEP Sales revenue= Fixed Expense / CM Ratio

=11820/28%=$42214