contribution income statement

Topics: Variable cost, Costs, Contribution margin Pages: 3 (336 words) Published: May 13, 2014
Selected HW Module 15
Q15-1. Cost-volume-profit analysis is a technique used to examine the relationships among the total volume of some independent variable, total costs, total revenues, and profits during a time period. It is particularly useful in the early stages of planning when it provides a framework for discussing planning issues.

Q15-4. In a contribution income statement, costs are classified according to behavior as variable or fixed, and the contribution margin (the difference between total revenues and total variable costs) that goes toward covering fixed costs and providing a profit is emphasized. In a functional income statement, costs are classified according to function (rather than behavior), such as manufacturing and selling and administrative. This is the type of income statement typically included in corporate annual reports.

E15-17
a.
Manitoba Company
Contribution Income Statement
For the Month of May 2008

Sales (6,000  $50) $300,000 Less variable costs:
Direct materials (6,000  $5) $ 30,000
Direct labor (6,000  $10) 60,000
Factory overhead (6,000  $10) 60,000
Selling and administrative (6,000  $5) 30,000 (180,000) Contribution margin 120,000 Less fixed costs:
Factory overhead 40,000
Selling and administrative 20,000 (60,000)
Profit$ 60,000

b.

Note: The instructor might extend this assignment in class, computing the break-even point, the margin of safety, and the impact on profits of a change in sales. E15-18

a. Sales $750,000
Variable costs (412,500)
Contribution margin $337,500

Contribution margin ratio = $337,500/$750,000 = 0.45
Annual break-even dollar sales volume = $210,000/0.45 = $466,667

b. Annual margin of safety in dollars:
Sales $750,000...
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