Question

The Fantastic Ice Cream Shoppe sold 8,800 servings of ice cream during June for Dollar 5 per serving. The shop purchases the ice cream in large tubs from the Deluxe Ice Cream Company. Each tub costs the shop $14 and has enough ice cream to fill 28 ice cream cones. The shop purchases the ice cream cones for $0.15 each from a local warehouse club. The Fantastic Ice Cream Shoppe is located in a strip mall, and rent for space is $2,050 per month. The shop expenses $220 a month for the depreciation of the shop's furniture and equipment. During June, the shop incurred an additional $2,800 of other operating expenses (75% of these were fixed costs).
Required:
a. Prepare the Fantastic Ice Cream Shoppe's June income statement using a traditional format.
b. Prepare the Fantastic Ice Cream Shoppe's June income statement using a contribution margin format

Answer 1

Answer:

The Fantastic Ice Cream Shoppe

a) Fantastic Ice Cream Shoppe

June Income Statement, using traditional format

Sales Revenue         $44,000

Cost of goods sold       5,720

Gross profit              $38,280

Expenses:

Rent expense             2,050

Depreciation exp.          220

Other operating exp. 2,800

Total expenses        $5,070

Net Income             $33,210

b) Fantastic Ice Cream Shoppe

June Income Statement, using contribution margin format

Sales Revenue                   $44,000

Direct materials      5,720

Operating expense  700

Total variable expense         6,420

Contribution margin         $37,580

Fixed expenses:

Rent expense             2,050

Depreciation exp.          220

Other operating exp.  2,100

Total expenses                  $4,370

Net income                      $33,210

Explanation:

a) Data and Calculations:

Sales of ice cream during June = 8,800 servings

Price per serving = $5

Sales revenue = $44,000 ($5 * 8,800)

Purchase cost of ice cream in large tubs = $14 * 8,800/28 = $4,400

Purchase cost of ice cream cones = $0.15 * 8,800 = $1,320

Total cost of direct materials = $5,720

Fixed costs:

Rent = $2,050 per month

Depreciation = $220

Other operating expenses:

Fixed operating expense = $2,100 ($2,800 * 75%)

Variable operating expense = $700 ($2,800 * 25%)