Contribution Format Income Statement Using Variable Costing

What s left in contribution margin goes in covering fixed costs and remaining into the net profit loss.

Contribution format income statement using variable costing. Rather than separating product costs from period costs like the traditional income statement this. Prepare a contribution format income statement for the month using variable costing. The variable costing income statement is one where all variable expenses are subtracted from revenue which results in contribution margin. Following formats show the difference between the presentation of information in income statements prepared under absorption and marginal costing.

Next we calculate the contribution margin format income statement under variable costing. The contribution margin income statement is a very useful tool in planning and decision making. From this all fixed expenses are then subtracted to arrive at the net profit or loss for the. To do this you ll need your sales revenue and variable cost information.

It is useful to create an income statement in the variable costing format when you want to determine that proportion of expenses that truly varies directly with revenue. In many businesses the contribution margin will be substantially higher than the gross margin because such a large amount of its production costs are fixed and very few of its selling and administrative expenses are variable. Marginal cost statement treats fixed and variable cost separately and shows contribution. The variable marketing and administrative expenses are then subtracted from gross.

Every dollar of revenue generated goes into either of contribution margin or variable costs. Contribution margin income statement format. The contribution margin income statement is a cost behavior statement. Bradley company income statement variable for month ended may sales 9 000 x 8 per unit 72 000 variable costs.

A contribution margin income statement is an income statement in which all variable expenses are deducted from sales to arrive at a contribution margin from which all fixed expenses are then subtracted to arrive at the net profit or net loss for the period. However gross profit does not find any place in the marginal costing statement. Without preparing an income statement determine the absorption costing net operating income for the month.