Question

Seating Company is currently selling 3,600 oversized bean bag chairs a month at a price of ​$80 per chair. The variable cost of each chair sold includes ​$30 to purchase the bean bag chairs from suppliers and a ​$4 sales commission. Fixed costs are $ 12,000 per month. The company is considering making several operational changes and wants to know how the change will impact its operating income.
Required:
Prepare the​ company's current contribution margin income statement.

Answer 1

Answer:

Contribution margin is $165.600

Net income is $153,600

Explanation:

Contribution margin refers to sales revenue minus all the variables costs of production and distribution of a product.

Therefore, contribution margin income statement is an income statement that is prepared to show the effect of changes in the variable costs on the operating profit by showing the contribution margin before showing the net income for a period.

The​ company's current contribution margin income statement can be prepared as follows:

                                 Seating Company

                 Contribution margin income statement

                               For the month...

Particulars                                                              Amount ($)    

Sales (3,600 * $80)                                                  288,000

Variable cost:

Purchase of bean bag chairs ($3,600 * $30)        (108,000)

Sales commission (3,600 * $4)                               (14,400)    

Contribution margin                                               165,600

Fixed cost:

Fixed costs                                                              (12,000)    

Net income                                                             153,600