Answered: Total Per Unit Total Per Unit…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In an effort to raise the demand for reading tests, managers are planning to lower the price from $36 per test to $20 per test, the current price of the math test. They believe that doing so will increase the demand for reading tests to 60,000. Prepare a contribution format income statement reflecting Abado’s new pricing and demand structure.

Abado Profiles provides testing services to school districts that wish to assess students’ reading and mathematical abilities. Last year Abado evaluated 60,000 math tests and 20,000 reading tests. An income statement for last year follows.

	Math Testing	Reading Testing
	Total	Per Unit	Total	Per Unit	Total Company
Sales revenue	$1,200,000	$20	$720,000	$36	$1,920,000
Variable expenses	840,000	14	360,000	18	1,200,000
Contribution margin	$360,000	$6	$360,000	$18	720,000
Fixed expenses					360,000
Operating income					$360,000

Total
Per Unit
Total Company
Sales
2$
2$
20
$
Variable Expenses
18
i
Contribution Margin
$
$
360000
i
Fixed Expenses
2$
Operating Income / (Loss)

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