Variable Costing Income Statement Format

The variable costing income statement is one where all variable expenses are subtracted from revenue which results in contribution margin.

Variable costing income statement format. Thus the format of a variable costing income statement is. Contribution margin is the amount contributed by sales towards fixed costs and profit. Gross margin is replaced by the contribution margin. Variable costing income statement has the following line items.

It is useful to determine the proportion of expenses that actually varies directly with revenues. A variable costing income statement example applied to different business spheres is available online and cannot be included in this paper due to word count limitations. From this all fixed expenses are then subtracted to arrive at the net profit or loss for the period. Variable production costs include direct materials direct labor and variable manufacturing overheads.

This data cannot be directly obtained from a traditional income statement prepared under absorption costing system. Absorption costing statement assumes that fixed costs attach to products so all the production costs whether fixed or variable should become part of product cost. In many cases direct labor should be categorized as a fixed expense in this income statement format rather than a variable expense because this cost does not usually change in direct proportion to the amount of revenue generated. Absorption costing vs variable costing.

With the absorption costing income statement you accounted for the costs of your beginning inventory twice. Variable costing formula raw material labour cost utilities variable overhead number of mobile covers produced 300 000 150 000 150 000 2 000 000 0 30 per mobile case. Cost of goods sold 9 000 x 3 30 per unit 29 700 selling expenses 9 000 x 0 20 per unit 1 800 total variable. You should have multiplied the total costs by 80 000 and then subtract that number by your ending inventory costs.

Marginal cost statement offers an alternative layout to the traditional income statement prepared under absorption costing. Variable costing is a concept used in managerial and cost accounting in which the fixed manufacturing overhead is incurred in the period that a product is produced. Companies using variable costing system prepare income statement in contribution margin format that provides necessary information for cost volume profit cvp analysis.