Contribution Margin Income Statement Analysis

A business can also use this ratio to close down products lines that are not showing profits and investing in profitable product lines instead.

Contribution margin income statement analysis. 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. A contribution margin income statement on the other hand is a purely management oriented format of presenting revenues and expenses that helps in various revenues and expense related decision making processes. The contribution margin income statement is a useful tool when analyzing the results of a previous period. Contribution margin is the amount remaining from sales revenue after variable expenses have been deducted.

This statement tells you whether your efforts for the period have been profitable or not. Contribution margin is essentially a company s revenues minus its variable expenses and it shows how much of a company s revenues are contributing to its fixed costs and net income. Shaded cells have formulas careful. The contribution margin income statement is used for analysis and decision making.

The contribution margin is found by subtracting all variable costs from revenue sales. Use this spreadsheet to prepare a contribution margin income statement. The resulting value is sometimes referred to as operating income or net income. Contribution margin analysis contribution margin is a managerial ratio that is used to determine the breakeven point for a product and from there they can make informed decisions on product pricing.

Contribution margin income statements refer to the statement which shows the amount of contribution arrived after deducting all the expenses that are variable in nature from the total revenue amount and further fixed expenses are deducted from the contribution to get the net profit loss of the business entity. The contribution margin income statement is a cost behavior statement. The contribution margin income statement separates expenses by behavior emphasizing the distinction between expenses that change. Contribution margin is first used to cover the fixed expenses and then whatever remains go towards profits.

The contribution margin income statement is a very useful tool in planning and decision making. After you enter your numbers check the break even chart below.