Posted by Brenda on Saturday, April 10, 2010 at 1:35pm.
Your general manager called you into his office to discuss an ongoing problem. He explains that in the past, whenever he wanted to know how the projected income statement might change if sales volume changes, it would take weeks to have the accounting department redo the entire budget. You try to hide your smile, as you had discussed this very kind of problem in your accounting class the prior evening. You tell him that the easy solution to this planning problem is to change from the traditional income statement format to the contribution format income statement. Using the contribution format will dramatically reduce the time it will take to do a what-if analysis (how profits may change if sales volume goes up or down from the current budget.)
Explain what you would have to do to project profits using the traditional format if sales were to increase 20%.
Explain how and why it would be easier if the contribution format were used.
Describe the steps needed to create a contribution format income statement.
Include 1 data slide and examples of a traditional format income statement and the equivalent contribution format, based on that data.
Use charts when appropriate to make it visually interesting
Can someone please explain this to me?
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