Hugable Hippos is a specialty pet gift shop selling exotic pet-related items onl

Question

Hugable Hippos is a specialty pet gift shop selling exotic pet-related items online. The shop has no physical location. Results for last year are shown next: (Click the icon to view the results.) For internal planning and decision-making purposes, the owner of Hugable Hippos would like to translate the company's income statement into the contribution margin format. Since Hugable Hippos is online only, all of its cost of goods sold is variable. A large portion of the selling and marketing expenses consists of freight out charges $19.200), which were also variable. Only 20% of the remaining selling and marketing expenses and 25% of the website expenses were variable. Of the other operating expenses, 90% were fixed. Based on this information, prepare Hugable Hippos contribution margin income statement for last year Hugable Hippos Contribution Margin Income Statement For the Year Ended December 31 Data Table Less: Hugable Hippos Traditional Income Statement (Absorption Costing) For the Year Ended December 31 Sales revenue Less: Cost of goods sold Gross profit Less operating expenses: S 1,005,000 669,000 S 336,000 Less: Selling and marketing expenses Website maintenance expenses Other operating expenses $66,000 59,000 17.800 142.800 S 193,200 Operating income

Explanation / Answer

The following is the required contribution margin income statement:

note:

variable selling and marketing expenses = $19,200 + (66,000 - 19,200) * 20%

=>$19,200 + ($46,800)*20%

=>$19,200 + 9,360

=>$28,560.

Sales revenue $1,005,000 Less: Variable expenses cost of goods sold 669,000 variable selling and marketing expenses (see note) 28,560 Variable website maintenance expenses (59,000*25%) 14,750 other variable operating expenses (17,800 * 10%)..(90% are fixed which means 10% are variable) 1,780 Total variable expenses 714,090 contributionn margin (1,005,000 - 714,090) $290,910 Less:Fixed expenses Fixed selling and marketing expenses (total expense - variable portion above) =>(66,000 - 28,560) 37,440 fixed website maintenance expense (59,000 *75%) 44,250 other fixed operating expenses (17,800 * 90%) 16,020 Total fixed expenses 97,710 operating income (290,910 - 97,710) 193,200

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