Question

Universal Travel uses the contribution margin income statement internally. Universal's first quarter results are as​ follows: LOADING...​(Click the icon to view the income​ statement.) Universal's relevant range is sales of between $ 115 comma 000 and $ 650 comma 000. Read the requirementsLOADING.... Requirement 1. Prepare contribution margin income statements at sales levels of $ 240 comma 000 and $ 430 comma 000. ​(​Hint: Use the contribution margin​ ratio.) Begin by preparing the contribution margin income statement at the $ 240 comma 000 level. ​(Round the variable expense rate to the nearest whole percent. Enter losses with a minus sign or​ parentheses.) Universal Travel Contribution Margin Income Statement Three Months Ended March 31 Sales revenue Less: Variable expenses Contribution margin Less: Fixed expenses Operating income (loss)

Answer 1

Question Completion:

Contribution Income Statement for three months ended March 31, 2020:

Sales                        $600,000

Variable Expense   $240,000

Contribution           $360,000

Fixed expense        $155,000

Operating Income $205,000

Answer:

Universal Travel

Contribution Margin Income Statements at sales levels of $240,000 and $430,000:

Sales                        $240,000            $430,000      

Variable Expense     $96,000             $172,000

Contribution            $144,000            $258,000

Fixed expense        $155,000             $155,000

Operating Income or

(Loss)                       ($11,000)             $103,000

Explanation:

a) Data:

Sales                        $600,000

Variable Expense   $240,000

Contribution           $360,000

Fixed expense        $155,000

Operating Income $205,000

b) Calculation of the Contribution Margin Ratio = $360,000/$600,000 x 100 = 60%

c) With Contribution Margin Ratio as 60%, the variable cost ratio is calculated as follows:

= 100% - 60% = 40%

This ratio is used to calculate the variable cost, and then the result of the workings follow sequentially.  It is assumed that the fixed cost does not change within the relevant sales ranges.

This can also be used to work out different income statement data.