The document provides an example of calculating contribution margin ratio and preparing contribution margin income statements at different sales levels using the ratio. The ratio is calculated from an example income statement. Then two income statements are prepared, one at $250,000 sales and one at $360,000 sales, to demonstrate how to apply the ratio within the relevant sales range.
The document provides an example of calculating contribution margin ratio and preparing contribution margin income statements at different sales levels using the ratio. The ratio is calculated from an example income statement. Then two income statements are prepared, one at $250,000 sales and one at $360,000 sales, to demonstrate how to apply the ratio within the relevant sales range.
The document provides an example of calculating contribution margin ratio and preparing contribution margin income statements at different sales levels using the ratio. The ratio is calculated from an example income statement. Then two income statements are prepared, one at $250,000 sales and one at $360,000 sales, to demonstrate how to apply the ratio within the relevant sales range.
The document provides an example of calculating contribution margin ratio and preparing contribution margin income statements at different sales levels using the ratio. The ratio is calculated from an example income statement. Then two income statements are prepared, one at $250,000 sales and one at $360,000 sales, to demonstrate how to apply the ratio within the relevant sales range.
E21-31 For its top managers, Global Travel formats its income statement as follows:
Global Travel Income Statement For the Month Ended March 31, 2016 Sales Revenue $ 318,500 Variable Costs 111,475 Contribution Margin 207,025 Fixed Costs 175,000 Operating Income $ 32,025
Jackson’s relevant range is between sales of $250,000 and $360,000.
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Global Travel Income Statement Sales Revenue $ 250,000
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Global Travel Income Statement Sales Revenue $ 250,000 Variable Costs (35% of sales) 87,500
If the contribution margin ratio is 65% (that is, contribution margin is 65% of sales), then variable costs must be 35% of sales.
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Global Travel Income Statement Sales Revenue $ 250,000 Variable Costs (35% of sales) 87,500 Contribution Margin 162,500
If the contribution margin ratio is 65% (that is, contribution margin is 65% of sales), then variable costs must be 35% of sales.
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Global Travel Income Statement Sales Revenue $ 250,000 Variable Costs (35% of sales) 87,500 Contribution Margin 162,500 Fixed Costs 175,000
If the contribution margin ratio is 65% (that is, contribution margin is 65% of sales), then variable costs must be 35% of sales.
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Global Travel Income Statement Sales Revenue $ 250,000 Variable Costs (35% of sales) 87,500 Contribution Margin 162,500 Fixed Costs 175,000 Operating Income (Loss) $ (12,500)
If the contribution margin ratio is 65% (that is, contribution margin is 65% of sales), then variable costs must be 35% of sales.
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Global Travel Income Statement Sales Revenue $ 360,000
If the contribution margin ratio is 65% (that is, contribution margin is 65% of sales), then variable costs must be 35% of sales.
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Global Travel Income Statement Sales Revenue $ 360,000 Variable Costs (35% of sales) 126,000
If the contribution margin ratio is 65% (that is, contribution margin is 65% of sales), then variable costs must be 35% of sales.
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Global Travel Income Statement Sales Revenue $ 360,000 Variable Costs (35% of sales) 126,000 Contribution Margin 234,000
If the contribution margin ratio is 65% (that is, contribution margin is 65% of sales), then variable costs must be 35% of sales.
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Global Travel Income Statement Sales Revenue $ 360,000 Variable Costs (35% of sales) 126,000 Contribution Margin 234,000 Fixed Costs 175,000
If the contribution margin ratio is 65% (that is, contribution margin is 65% of sales), then variable costs must be 35% of sales.
Requirement 2: Prepare two contribution margin income statements: one at
the $250,000 sales level and one at the $360,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)
Global Travel Income Statement Sales Revenue $ 360,000 Variable Costs (35% of sales) 126,000 Contribution Margin 234,000 Fixed Costs 175,000 Operating Income (Loss) $ 59,000
If the contribution margin ratio is 65% (that is, contribution margin is 65% of sales), then variable costs must be 35% of sales.
Ricky's Repair Shop has a monthly target profit of
$17,000. Variable costs are 60% of sales, and monthly fixed costs are $8,000.
Requirements 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal. 2. Express Ricky's margin of safety as a percentage of target sales.
