Individual Project One Template
Part 1: Summarize what a contribution format income statement depicts, as compared to the traditional format.
Please discuss
Part 2: Using the following company data, show how the two income statement formats would look side by side.
Traditional- versus contribution-format statements are as follows:
| Traditional format | |
| Sales | |
| 1.COGS | |
| Gross margin | |
| SG&A | |
| Profit |
Calculation of cost of goods sold
Variable
Variable cost as a 60% of sales (need to be calculated) +Fixed costs of manufacturing (given)
| Contribution format | |
| Sales | |
| 2. Variable COGS | |
| Other variable expenses | |
| =Contribution margin | |
| Fixed COGS | |
| Other Fixed costs | |
| =Profit |
Variable COGS
Variable cost as a 60% of sales (need to be calculated)
Part 3: Explain why the contribution approach is more useful to project profits. As an example, show your calculations when using a projected sales increase of 20%.
Please discuss and make the following calculation
| Sales | |
| Contribution margin | |
| 3. Fixed costs | |
| Projected profit |
3. Fixed cost =
Fixed costs of manufacturing + Fixed selling and administrative costs
Part 4: Using the following data, show how expected profits would be different if there was a sales increase of 10% and she used variable COGS of 50% vs. 60%. As an offset, this implies an increase in fixed COGS of $1,000,000.
| 60% COGS | 50% COGS | |
| Sales with 10% increase | ||
| Less: Variable COGS | ||
| Less: Other variable costs | ||
| Contribution margin | ||
| Fixed COGS | ||
| Other fixed costs | ||
| Profit |