Question

Assume University Athletic Pharoah Club sells T-shirts for $30 and anticipates selling 6,700 shirts during football season. The club purchases the shirts from a local dealer for $23.00. Budgeted fixed costs of $35,000 are made up of $3,700 of selling expense and the remainder is $17,700 administrative expense. The selling expenses include a sales commission of $0.22 per shirt. All other selling costs are fixed. Prepare an income statement in the contribution margin format.

Answer 1

The preparation of the University Athletic Pharaoh Club's Income Statement in the contribution margin format is as follows:

University Athletic Pharaoh Club

Income Statement

For the football season

Sales Revenue                $201,000

Variable cost of sales        155,574

Contribution margin       $45,426

Fixed Costs:

Selling and administrative 33,526

Net Income                       $11,900

Data and Calculations:

Sales revenue = $201,000 ($30 x 6,700)

Cost of sales = $155,574 ($23.22 x 6,700)

Fixed Costs = $35,000

Sales commission = $1,474 ($0.22 x 6,700)

Remaining fixed costs = $33,526

Thus, the income statement of University Athletic Pharaoh Club for the football season shows a net income of $11,900.

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