Question

EB10.

Answer 1

Answer:

Forecast contribution margin income statement

                                                                             $

Forecast sales (3,410 units x $250)             852,500

Forecast variable cost (3,410 units x $115)   (392,150)

Forecast contribution margin                        460,350  

Forecast fixed cost                                         (24,300)

Forecast net income                                      436,050                                                                      

Explanation:

In this case, forecast sales volume increases by 10%, which is 110% of original sales volume ie 110% x 3,100 units = 3,410 units. Then, we will multiply the forecast sales volume by selling price in order to obtain the forecast sales revenue.

The forecast variable cost will be calculated based on forecast sales volume, which is forecast sales volume multiplied by variable cost per unit. The variable cost varies according to activity level.    

The forecast fixed cost is the original fixed cost plus an increase of $400 per month ($400 x 12 = $4,800). The forecast fixed cost is $24,300.

Finally, we will prepare contribution margin income statement by deducting forecast variable cost and forecast fixed cost from forecast sales revenue.                                                                                                    

Forecast sales revenue minus forecast variable cost gives forecast contribution margin.