Prepare an Income Statement using the Contribution Approach for The Tailgate Shop
What is the financial performance of The Tailgate Shop's Trailer Hitch Department in the first quarter of the year based on the income statement provided?
The Trailer Hitch Department incurred a net loss of $230,500 in the first quarter of the year.
Introduction to Contribution Approach:
Calculating Income Statement using the Contribution Approach:
In preparing the income statement for The Tailgate Shop's Trailer Hitch Department using the contribution approach, we need to consider the following components:
Sales: $550,000
Variable Costs:
- Cost of goods sold: $250,000 - Variable selling expenses: $20 per hitch (total hitches sold = $220 each) - Variable administrative expenses: 30% of total administrative expenses
Contribution Margin: Sales - Variable Costs
Fixed Costs:
- Remaining selling expenses - Fixed administrative expenses
Net Income: Contribution Margin - Fixed Costs
Variable Costs:
- Cost of goods sold: $250,000 - Variable selling expenses: $20 per hitch (total hitches sold = $220 each) - Variable administrative expenses: 30% of total administrative expenses
Contribution Margin: Sales - Variable Costs
Fixed Costs:
- Remaining selling expenses - Fixed administrative expenses
Net Income: Contribution Margin - Fixed Costs