Question

Prepare traditional and contribution margin income statements (Learning Objective 6) The Willowick Ice Cream Shoppe sold 8,700 servings of ice cream during June for $3 per serving. The shop purchases the ice cream in large tubs from the Deluxe Ice Cream Company. Each tub costs the shop $12 and has enough ice cream to fill 30 ice cream cones. The shop purchases the ice cream cones for $0.25 each from a local warehouse club. Located in an outdoor mall, the rent for the shop space is $1,600 per month. The shop expenses $200 a month for the depreciation of the shop’s furniture and equipment. During June, the shop incurred an additional $2,600 of other operating expenses (75% of these were fixed costs).
1. Prepare The Willowick Ice Cream Shoppe's June income statement using a traditional format
2. Prepare The Willowick Ice Cream Shoppe's June income statement using a contribution margin format.

Answer 1

Answer:

Sales Revenues 26100

COGS                  5655

gross profit        20445

rent expense                 1600

depreciation expense   200

operating expense 2600

net income                16045

   

Sales Revenues          26100

Variable Cost                   6305

Contribution margin        19795

rent expense                     1600

depreciation expense       200

fixed operating expense   1950  

net income                   16045

Explanation:

traditional:

COGS

$12 tub / 30 ice cream cones = $0.40

+ 0.25 ice cream cones

total per unit 0.65

8,700 x 0.65 = 5655

Gross profit: sales revenue less COGS

then, we subtract the rent expense, depreicaiton expense and operatign expenses to get net income.

contribution the variable cost will be subtracted from the sales revenues

that will include the 75% of the operating expenses

The difference between sales revenue and variable cost is called contribution margin.