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.)
Prepare a PowerPoint of 10–12 slides, including speaker notes, for your general manager and his senior management staff. At a minimum, address these specific issues:
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.
Slide 1: Introduction
- Title: The Benefits of Using the Contribution Format Income Statement for Profit Projection and Analysis
- Introduction to the topic and purpose of the presentation
Slide 2: Agenda
- Outline the agenda of the presentation
Slide 3: Traditional Format Income Statement and Profit Projection
- Definition and explanation of the traditional format income statement
- Explanation of the process of projecting profits using the traditional format
- Example: Show a sample data and calculate projected profits based on a 20% increase in sales using the traditional format
Slide 4: Challenges of Using Traditional Format for Profit Projection
- Discuss the challenges and limitations of using traditional format income statement for profit projection
- Time-consuming process of re-doing the entire budget
- Lack of flexibility in analyzing the impact of changes in sales volume
Slide 5: Introduction to the Contribution Format Income Statement
- Definition and explanation of the contribution format income statement
- Highlight the key difference between traditional and contribution format (focus on fixed and variable costs)
Slide 6: Benefits of Using Contribution Format for Profit Projection
- Explanation of how and why it would be easier to project profits using the contribution format
- Focus on the separation of fixed and variable costs, enabling a more accurate analysis of the impact of changes in sales volume
Slide 7: Steps to Create a Contribution Format Income Statement
- Step-by-step guide to creating a contribution format income statement
- Identify and separate variable costs
- Identify and separate fixed costs
- Calculate the contribution margin
- Deduct fixed costs to calculate the net profit
- Explain each step in detail, with relevant examples if necessary
Slide 8: Example - Traditional Format vs. Contribution Format
- Present a comparison of a traditional format income statement and an equivalent contribution format income statement based on the provided data
- Discuss the differences in presentation and analysis between the two formats
- Use charts, graphs, or visual aids to make the comparison visually interesting
Slide 9: Benefits of Visual Representation
- Highlight the importance and benefits of using charts, graphs, or visual aids when presenting income statements and analysis
- Visual aids make the information more digestible and engaging for the audience
Slide 10: Conclusion
- Recap the advantages of using the contribution format income statement for profit projection and analysis
- Summarize the steps for creating a contribution format income statement
Slide 11: Q&A
- Open floor for questions and answers
Slide 12: References
- List any references used in the presentation (if applicable)