Presented here is the income statement for Fairchild Co. for March Sales Cost of

Question

Presented here is the income statement for Fairchild Co. for March Sales Cost of goods sold Gross profit Operating expenses Operating income $79,500 41,500 30.500 7,500 Based on an analysis of cost behavior patterns, it has been determined that the company's contribution margin ratio is 26% Required a. Rearrange the preceding income statement to the contribution margin format ales riable expenses ontribution margin ixed expenses $ 79,500 58,830 $ 20,670 13,170 $ 7,500 Operating income b. Calculate operating income if sales volume increases by 9%. (Do not round intermediate calculations.) erating income c. Calculate the amount of revenue required for Fairchild to break-even Break-even

Explanation / Answer

ReqA. CM ratio =26% Therefore variable cost ratio is ( 100-26) = 74% Income statement under Variable costing Sales 79,500 Less: Variable cost (79500*74%) 58,830 Contribution 20,670 Less: Fixed cost: Total Cost (41500+30500) 72000 Less: Variable cost    58830 13170 Net Operating income 7,500 Reqb: Sales increase by 9% Additional Sales ( 79500 *9% ) = $ 7155 Additional contribution earned (7155*26% ) = $ 1,860.30 Increase in Net Operating income      $ 1860.30 Net Operating income Total ( 7500+1860.30) =   $ 9360.30 ReqC: Break even sales in $ Total fixed cost   $ 13170 CM ratio   26% Break even salesin $ = total fixed cost / CM ratio                                       ( 13170 / 26 *100 ) = $ 50,654

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