Question

Zhao Co. has fixed costs of $366,000. Its single product sells for $177 per unit, and variable costs are $117 per unit. The company expects sales of 10,000 units. Prepare a contribution margin income statement for the year ended December 31, 2017.

ZHAO CO.
Contribution Margin Income Statement

Answer 1

To prepare a contribution margin income statement for Zhao Co., we need to calculate the total revenue, total variable cost, and contribution margin. The contribution margin per unit is $60. The net income for the year ended December 31, 2017 is $234,000.

Step-by-step explanation:

To prepare a contribution margin income statement for Zhao Co., we need to calculate the total revenue, total variable cost, and contribution margin for the expected sales of 10,000 units. The formula for contribution margin is:

Contribution Margin = Sales Revenue - Variable Costs

Contribution margin per unit = Selling Price per unit - Variable Cost per unit

Based on the given information, the contribution margin per unit would be $177 - $117 = $60.

To calculate the contribution margin for 10,000 units, we multiply the contribution margin per unit by the expected sales:

Contribution Margin = $60 * 10,000 = $600,000

Using this information, we can now prepare the contribution margin income statement for Zhao Co.:

RevenueSales Revenue (10,000 units)$1,770,000Variable CostsVariable Costs (10,000 units)$1,170,000Contribution MarginContribution Margin (10,000 units)$600,000Fixed CostsFixed Costs$366,000Net IncomeNet Income$234,000