Question

Global Travel uses the contribution margin income statement internally. Global's first-quarter results are as follows:

Sales revenue $525,000
Less: Variable expenses: 210,000
Contribution Margin $315,000
Less: Fixed Expenses 172,000
Operating Income $142,800
Global's relevant range is sales of between $120,000 and $630,000.

1. Prepare contribution margin income statements at sales levels of $230,000 and $400,000.
( Hint: Use the contribution margin ratio.)
2. Begin by preparing the contribution margin income statement at the $230,000.

Answer 1

Contribution margin ratio = Contribution Margin / Sales

= $ 315,000 / $ 525,000

= 0.6 or 60%

Hence, contribution margin at $ 230,000 Sales = Contribution margin ratio * $ 230,000 ( Sales )

= 0.6 * 230,000 = $ 138,000 ( Part A )

Contribution margin at $ 400,000 Sales = 0.6 * $ 400,000

= $ 240,000 ( Part B )

At Sales level of $ 230,000

Sales revenue $ 230,000

- Variable expenses (Sales - Contribution margin) $ 92,000

Contribution Margin ( From Part A ) $ 138,000

- Fixed Expenses $ 172,000

Operating Income / Loss $ (34,000)

At Sales level of $ 400,000

Sales Revenue $ 400,000

- Variable expenses $ 160,000

Contribution Margin ( From part B ) $ 240,000

- Fixed Expenses $ 172,000

Operating Income / Loss $ 68,000

Explanation:

Refer to the answer.