5b. MousePad Computer Company, in addition to its retail sales, conducts night classes in computer technology. MousePad has provided you the following information: Number of students 120 Revenue per student $450 Student-related variable costs $100 per student Salary for three instructors $1,800 each Administrative costs $30 per student Maintenance on building $15,000 per year Required: Construct a contribution margin format income statement.

Net Income = $18,000

Explanation:

MousePad Computer Company

Contribution Margin Income statement

Revenue (120 students * $450) = $54,000

Less: Variable expenses:

Student-related costs (120 students * $100) = $12,000

Administrative costs (120 students * $30) = $ 3,600

Total variable expenses = ($15,600)

Contribution Margin $38,400

Less: Fixed cost

Instructors salary (3 * $1,800) = $ 5,400

Maintenance on building = $15,000

Total fixed cost = $ (20,400)

Net Operating Income = $18,000

Note:

Students cost is a variable expense, because if we decrease the student's number, the revenue and expenses will decrease proportionately. Moreover, the company is getting profit from the students.