Question

Problem 12-21 Prepare a contribution margin format income statement; calculate break-even point LO 7, 8, 9, 11 Presented here is the income statement for Big Shot, Inc., for the month of May: Sales $ 60,500 Cost of goods sold 52,100 Gross profit $ 8,400 Operating expenses 15,700 Operating loss $ (7,300 ) Based on an analysis of cost behavior patterns, it has been determined that the company's contribution margin ratio is 16%. Required: a. Rearrange the preceding income statement to the contribution margin format. b. If sales increase by 15%, what will be the firm's operating income (or loss)? (Do not round intermediate calculations.) c. Calculate the amount of revenue required for Big Shot, Inc., to break-even.

Answer 1

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a. Contribution Margin Format
Sale		60500
Less: Variable Cost
Cost of Goods Sold		52100
Contribution Margin		8400
Less: Fixed Cost
Operating Expense		15700
Net Operating Income/(loss)		-7300
b. increase in sale by 15%
		Existing	After Increase by 15%	Working
Sale		60500	69575	60500+15%
Less: Variable Cost
Cost of Goods Sold		52100	59915	52100+15%
Contribution Margin		8400	9660
Less: Fixed Cost
Operating Expense		15700	15700
Net Operating Income/(loss)		-7300	-6040
c. BEP in first case
Fixed Cost	15700
Contribution Margin Ratio	8400/60500	13.88%
Break Even Point $	Fixed Cost/Contribution Margin Ratio
	15700/13.88%
	113112