What is a contribution margin income statement? And how do i prepare one?

Answer 1

A contribution margin income statement looks like this:

Revenue xxx
Less:
Variable manufacturing costs (direct labor + direct material + variable overhead) xxx
equals Contribution margin from production xxx
Less:
Variable selling and administrative expenses xxx
equals Contribution margin xxx
Less:
Fixed manufacturing costs xxx
Fixed selling and administrative costs xxx
equals Net income xxx

Edit : To Jaymay - if you read my answer again, I DID say minus variable selling and admin expenses before arriving at contribution margin. You only read the 1st few lines and stopped reading at contribution margin FROM PRODUCTION.

Answer 2

Contribution Margin Income Statement

Answer 3

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RE:
What is a contribution margin income statement? And how do i prepare one?

Answer 4

I AM SORRY to say that Sandy is incorrect.

The Contribution Margin is equal to SALES minus ALL VARIABLE expenses, which includes direct material, direct labor, variable overhead AND VARIABLE selling and admininstrative costs. Also, some commissions maight be entirely variable so in that case you would subtract that as well.

ONCE AGAIN, please remember that the Contribution Margin = Sales - ALL VARIABLE EXPENSES ( variable product and variable period costs). The contribution margin is the amount which is used to cover any REMAINING FIXED COSTS. This is called the Variable Costing Approach in Management Accounting.

To prepare this kind of income statement use the following approach:

Sales
- Direct Materials
- Direct Labor
- Variable Overhead
- Variable Selling Expenses
- Variable Admin Expenses
- ANY OTHER VARIABLE COSTS (commissons, shipping, travel, etc...there may be MANY MORE...)
_____________________
CONTRIBUTION MARGIN

- FIXED overhead
- FIXED selling costs
- FIXED admin costs
- (ANY OTHER FIXED COSTS)
___________________________
operating income before taxes
-taxes
_________________________
net income



hope that helps to clarify things. good luck.