Question

Holly Company had Sales of $45,900, Variable Costs of $6,600, and Fixed Cost of $12,300 in the preceeding year. Sales are expected to increase by 25% in the coming year. Prepare the expected contribution margin income statement for the coming year.

Answer 1

Contribution margin = Sales - Variable costs

= $45,900 - $6,600

= $39,300

Contribution margin ratio = Contribution margin / Sales

= $39,300 / $45,900

= 0.86

Variable cost ratio = 1 - Contribution margin ratio

= 1 - 0.86

= 0.14

Contribution margin Income statement

		Percentage of sales
Sales revenues	$57,375 [$45,900+($45,900*25%)]	100%
Less : Variable expenses	$8,032.5 ($57,375*14%)	14%
Contribution margin	$49,342.5 ($57,375*86%)	86%
Less : Fixed expenses	$12,300
Net income	$37,042.5