Question

Contribution Income Statement and Operating Leverage

Willamette Valley Fruit Company started as a small cannery-style operation in 1999. The company now processes, on average, 20 million pounds of berries each year. Flash-frozen berries are sold in 30 pound packs to retailers. Assume 650,000 packs were sold for $75 each last year. Variable costs were $42 per pack and fixed costs totaled $14,250,000.Enjoy the berry best blueberries in the world!" The selling price is $90 per crate, variable costs are $80 per crate, and fixed costs are $280,000 per year. In the year 2017, Stateline Berry Farm sold 50,000 crates.
Prepare a contribution income statement for the year ended December 31, 2017. HINT: Use a negative sign with both "costs" answers.
STATELINE BERRY FARM
Contribution Income Statement
For the Year Ended December 31, 2017
Sales
Variable costs
Contribution margin
Fixed costs
Net income

Answer 1

A contribution income statement for Stateline Berry Farm for the year ended December 31, 2017, shows sales of $4,500,000, variable costs of $4,000,000, contribution margin of $500,000, fixed costs of $280,000, and a net income of $220,000. The operating leverage can be analyzed through the ratio of fixed to total costs, affecting net income sensitivity to sales changes.

Step-by-step explanation:

Contribution Income Statement for Stateline Berry Farm

To prepare a contribution income statement for Stateline Berry Farm for the year ended December 31, 2017, we would follow these steps:

1. Calculate sales: 50,000 crates × $90 per crate = $4,500,000.
2. Calculate variable costs: 50,000 crates × $80 per crate = $4,000,000.
3. Calculate contribution margin: Sales ($4,500,000) - Variable costs ($4,000,000) = $500,000.
4. Subtract fixed costs to find net income: Contribution margin ($500,000) - Fixed costs ($280,000) = $220,000 net income.

The contribution income statement would therefore look like this:

• Sales: $4,500,000
• Variable costs: -$4,000,000
• Contribution margin: $500,000
• Fixed costs: -$280,000
• Net income: $220,000

It's important to note that the operating leverage of the farm can be determined by how sensitive the net income is to a change in sales, which depends on the proportion of fixed costs to total costs.

Answer 2

See below

Step-by-step explanation:

Contribution income statement for the year ended, December 31, 2017

Sales ($90 per crate × 50,000 crates)

$4,500,000

Less:

Variable costs ($80 per crates × 50,000 crates)

($4,000,000)

Contribution margin

$500,000

Less:

Fixed costs

($280,000)

Net income

$220,000