The following is an income statement from Jimmy’s Coat Store for the month ended

Question

The following is an income statement from Jimmy’s Coat Store for the month ended January 31:

Jimmy’s Coat Store

Income Statement

For the Month Ended January 31

Sales                                                                            $750,000

Cost of Goods Sold                                                    300,000

Gross Margin                                                              450,000

Less Operating Expenses

            Selling                                      $23,560

            Administrative                                    49,500               73,060

Net Operating Income                                                           $376,940

On average, a coat sells for $250. Employees are paid a commission of $6.50 per coat sold and the remainder of the selling expense is fixed. Variable administrative expenses are $12.50 per unit with the remainder being fixed. As always, it is assumed that cost of goods sold is all variable.

1.What is the contribution per unit for Jimmy’s and what is his total contribution margin for the month of January?

Explanation / Answer

Sales        7,50,000 Less: Variable Expenses Cost of goods sold                                        3,00,000 Variable selling expenses 750,000/250*6.5 = $19,500 Variable administrative expenses 750,000/250*12.5 = $37,500        3,57,000 Contribution Margin        3,93,000 Contribution margin per cost 393,000 / (750,000/250) = $131

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