Income Statement Using Contribution Margin Format

The contribution margin income statement is a special format of the income statement that focuses on expenses that are bifurcated for better understanding.

Income statement using contribution margin format. Total contribution margin sales variable costs fixed costs include all fixed costs whether they are product costs overhead or period costs selling and administrative. The variable marketing and administrative expenses are then subtracted from gross contribution margin to obtain contribution margin. This income statement format is a superior form of presentation because the contribution margin clearly shows the amount available to cover fixed costs and generate a profit or loss. The formula for your contribution margin is.

The contribution margin format income statement converts a traditional income statement format and replaces certain summary lines with contribution margin lines rather than a summary for profits. Calculating your contribution margin income. Materials supplies your variable overhead subtract your variable selling. This has been a guide to contribution margin income statement.

For example this income statement type includes a gross contribution margin contribution margin and then the final operating income for the period. Looking at this statement it can be easily understood as to which business activity is resulting in a revenue leak. A variable cost changes with the amount of production while a fixed cost stays constant regardless of the amount of production. In a contribution margin income statement variable cost of goods sold is subtracted from sales revenue to obtain gross contribution margin.

Simply laid out this is the format needed to develop a contribution margin income statement. Net product revenue sales total variable costs product revenue for example if your product revenue was 500 000 and total variable expenses were 250 000 your contribution margin would be 250 000 500 000 or 50. In essence if there are no sales a contribution margin income statement will have a zero contribution margin with fixed costs clustered beneath the contribution margin line item. Here we discuss components format of contribution margin income statement along with an example advantages and disadvantages.

A contribution format income statement also known as a contribution margin income statement separates a business s costs into variable costs and fixed costs.