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J Crane, Ltd. is a local coat retailer. The store’s accountant prepared the following income statement for the month ended January 31: Sales revenue $ 750,000 Cost of goods sold 300,000 Gross margin 450,000 Operating expenses Selling expense $ 23,560 Administrative expense 49,500 73,060 Net operating income $ 376,940 Crane sells its coats for $250 each. Selling expenses consist of fixed costs plus a commission of $6.50 per coat. Administrative expenses consist of fixed costs plus a variable component equal to 5% of sales. Prepare a contribution format income statement for January.

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Answer:

                                                J Crane, Ltd

                           Contribution Margin Income Statement

                           For the Month ended January 31 YY

                                                                      $                       $

Sales revenue                                                                 750,000

Less Variable cost :

Cost of goods sold                                  300,000

Selling expenses                                     19,500

Admin Expense                                       37,500

                                                                                         357,000                

Contribution Margin                                                        393,000

Less Fixed cost :

Selling expense                                       4,060

Administrative expense                         12,000

                                                                                         16,060

Net income                                                                     376,940

Working:

Number of Coat sold = 750,000/250 = 3000 coats

Variable costs:

Selling expenses = 6.5 x 3000 = 19500

Admin Expense = 750,000 x 5% = 37,500

Fixed cost:

Selling expenses = 23560 - 19500 = 4060

Admin Expense = 49,500 - 37,500 = 12,000

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