Question

It costs Homer's Manufacturing $0.45 to produce baseballs and Homer sells them for $6.00 a piece. Homer pays a sales commission of 5% of sales revenue to his sales staff. Homer also pays $12,000 a month rent for his factory and store, and also pays $79,000 a month to his staff in addition to the commissions. Homer sold 71,500 baseballs in June. If Homer prepares a contribution margin income statement for the month of June, what would be his operating income?

Answer 1

Explanation:

The preparation of the contribution margin income statement is presented below:

Sales (71,500 × $6)                                           $429,000

Less: Variable cost

Commission of 5% of sales                             ($21,450)

Manufacturing cost (71,500 × $0.45)              ($32,175)

Contribution margin                                        $375,375

Less: Fixed cost                                              

Monthly rent                                                    ($12,000)

Payment to staff                                              ($79,000)

Net income                                                      $284,375