EXERCISES Group B E7-38B Prepare contribution margin income statements (Learning

Question

EXERCISES Group B E7-38B Prepare contribution margin income statements (Learning Objective Aussie Travel uses the contribution margin income statement internally. Aussie's second quarter results are as follows: Aussie Travel Contribution Margin Income Statement Three Months Ended June 30 4 5 Sales revenue 6 Less: Variable expenses 7 Contribution margin 8 Less: Fixed expenses 9 Operating income 10 $ 550,000 $ 357,500 176,800 180,700 Aussie's relevant range is sales of between $115,000 and $680,000. Requirements 1. Prepare contribution margin income statements at sales levels of $190,000 and $420,000. (Hint: Use the contribution margin ratio.) 2. Compute breakeven sales in dollars.

Explanation / Answer

Contribution margin ratio = Contribution / sales * 100 357500/550000*100 = 65% If contribution margin ratio is 65% then variable cost ratio is 35% Ans 1 Contribution margin income statement Sales $ 190,000.00 $ 420,000.00 Less : Variable cost@35% $   66,500.00 $ 147,000.00 Contribution margin $ 123,500.00 $ 273,000.00 Ans2 Calculation of break even sales Break even sales = Fixed cost / contribution margin ratio 176800/65*100 = $ 272,000.00

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