Variable Income Statement Format

From this all fixed expenses are then subtracted to arrive at the net profit or loss for the period.

Variable income statement format. This variable costing is not presented in the form of the traditional income statement. Format of the income statement elements of the income statement net income results from revenue expense gain and loss transactions. 1 an income statement always represents a period of time like a month quarter or a year. Marginal cost statement treats fixed and variable cost separately and shows contribution.

A format of an income statement is very important as it is the means of communication of operating results to outsiders. The income statement above shows five full calendar years plus a last twelve months ltm period as of 9 30 13. However gross profit does not find any place in the marginal costing statement. This contrasts with a balance sheet which shows account balances for one exact date.

Single step income statement format. It is useful to determine the proportion of expenses that actually varies directly with revenues. Notice that all variable expenses are direct expenses of the segment. This format is called the contribution margin format for an income statement because it shows the contribution margin.

The income state ment summarizes these transactions. Contribution margin is defined as sales revenue less variable expenses. Following formats show the difference between the presentation of information in income statements prepared under absorption and marginal costing. 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.

According to the definition provided by needles powers and crosson 2010 variable costing refers to the method of writing a company s performance reports that define managers controllable costs as either fixed or variable. 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.