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Contribution Margin Income Statement:

Explanation:

Contribution margin income statement is an income statement that is prepared to show the contribution margin figure in the income statement. A traditional income statements or profit or loss accounts prepared for external parties like govt. agencies, shareholders, auditors show gross profit and net profit and do not show contribution margin figure.

A contribution margin income statement is prepared for the use of internal management. In such statements, all variable (manufacturing and non-manufacturing) and fixed (manufacturing and non-manufacturing) expenses are shown separately.

When all variable manufacturing expenses are deducted from the sales revenue, the resultant figure is gross contribution margin. And when all non-manufacturing variable expenses are deducted from the gross contribution margin, the resultant figure is contribution margin or net contribution margin.

Companies using variable costing system for decision making purposes usually prepare contribution margin format income statement. To improve your understandings, see the following arrangement of revenues and expenses:

Sales
Less manufacturing variable Expenses
Gross contribution margin
Less non-manufacturing variable expenses
Contribution margin
Less fixed manufacturing and non-manufacturing expenses
Net operating income

Example:

The following data pertain to the operations of the ABC company for the year:

Sales: $750,000
Manufacturing costs:
     Variable expenses  $300,000
     Fixed expenses $160,000
Non-manufacturing expenses:
     Variable expenses: 75,000
     Fixed marketing and administrative expenses: $150,000
 
Required: Prepare a contribution margin income statement

Solution:

ABC company
Contribution Margin Income Statement
For the year ended December 31, 20__

Sales (75,000 $10)   $750,000
     
Variable manufacturing expenses   $300,000
      
Gross contribution margin   $450,000
Less variable marketing and administrative expenses   $75,000
   
Contribution margin   $375,000
Less fixed costs:    
     Manufacturing $160,000  
     Marketing and administrative expenses $150,000 310,000
 

Net operating income   $65,000
   

Relevant Articles:

Contribution Margin
Contribution Margin Ratio (CM Ratio)
Contribution Margin Income Statement
Break-even Point Analysis
Target Profit Analysis
Margin of Safety (MOS)
Operating Leverage
Break even Analysis with Multiple Products
CVP Consideration in Cost Structure
Importance of Cost Volume Profit (CVP) Analysis

 

 

 

 

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Financial Accounting Topics


  Introduction to Accounting
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  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Accounting for Bills of Exchange
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Statement of Cash Flows
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  Accounting Ratios Analysis
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  Depreciation, Provisions and Reserves
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  Accounting Dictionary
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  Financial Calculators
 
 
 
Managerial Accounting Topics

  Financial Statements
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  Cost Volume Profit Relationship
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  Variable Costing System
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  Materials and Inventory Cost Control
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  Activity Based Costing System
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 
 

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