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:
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