Question

The traditional income statement for Pace Company shows sales $900,000, cost of goods sold $600,000, and operating expenses $200,000. Assuming all costs and expenses are 70% variable and 30% fixed, prepare a CVP income statement through contribution margin.

Answer 1

To prepare a Contribution Margin Income Statement for Pace Company, we first calculate the variable and fixed portions of the COGS and operating expenses and subtract the variable costs from sales. The resulting contribution margin is $340,000 after accounting for $420,000 in variable COGS and $140,000 in variable operating expenses.

Step-by-step explanation:

The student has asked for help in preparing a Contribution Margin Income Statement for Pace Company. In this format, sales are separated into variable and fixed components for cost of goods sold (COGS) and operating expenses (OpEx) to calculate the contribution margin.

First, let's calculate the variable portion of the costs and expenses, which is 70% of each:

• Variable COGS = $600,000 × 70% = $420,000
• Variable OpEx = $200,000 × 70% = $140,000

Now calculate the fixed portion, which is 30%:

• Fixed COGS = $600,000 × 30% = $180,000
• Fixed OpEx = $200,000 × 30% = $60,000

The contribution margin is then calculated by subtracting the variable costs from sales:

Contribution Margin = Sales - Variable COGS - Variable OpEx

= $900,000 - $420,000 - $140,000

= $340,000

The CVP income statement through contribution margin would then look like this:

• Sales: $900,000
• Variable Costs (sum of Var. COGS and Var. OpEx): $560,000
• Contribution Margin: $340,000
• Fixed Costs (sum of Fixed COGS and Fixed OpEx): $240,000