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Presented here is the income statement for Fairchild Co. for March: Sales $ 84,000 Cost of...

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Accounting

Presented here is the income statement for Fairchild Co. forMarch: Sales $ 84,000 Cost of goods sold 40,500 Gross profit $43,500 Operating expenses 30,500 Operating income $ 13,000 Based onan analysis of cost behavior patterns, it has been determined thatthe company's contribution margin ratio is 34%.

Required: a. Rearrange the preceding income statement to thecontribution margin format.

Calculate operating income if sales volume increases by 6%.(Do not round intermediate calculations.

Calculate the amount of revenue required for Fairchild tobreak-even

Answer & Explanation Solved by verified expert
4.4 Ratings (886 Votes)

Income statement (Contribution margin)
Sales $84,000
Less:
Variable cost 55440
Contribution $28,560
Less: Fixed Cost 15560
Operating Income $13,000
Income statement , if sales volume increase by 6%(Contribution margin)
Sales $89,040 ($ 84000*106%)
Less:
Varaible cost 58766.4 (55440*106%)
Contribution $30,274
Less: Fixed Cost 13000
Operating Income $17,274
Break even revenue Fixed cost/Contribution margin
$ 15560/34%
45764.71

Notes:

Calculation of Total Expense
Cost of goods sold $40,500
Add: Operating expenses 30500
Total Expenses 71000
Contribution= Sales*Contribution margin ratio
$ 84000*34%
28560
Variable cost= Sales-Contribution
$ 84000-28560
55440
Bifurcation of Fixed and variable expense
Total Expenses 71000
Less: Variable expenses 55440
Fixed cost 15560
Fixed cost remain same , hence will not change with the increase in revenue.

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