Principles of Accounting

Principles of Accounting

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

Z-Watch

Contribution Margin Income Statement

Sales

$462,452

Less Variable Costs:

Cost of Goods Sold

$230,934 Sales Commissions

$58,852 Delivery Charges

$13,984

Total Variable Costs

$303,770

Contribution Margin (34%)

$158,682

Less Fixed Costs:

Advertising

$1,850 Depreciation

$13,250 Insurance

$5,400 Payroll Taxes

$8,200 Rent

$9,600 Utilities

$17,801 Wages

$40,000

Total Fixed Costs

$96,101

Net Operating Income

$62,581

Z-Watch

Traditional Income Statement

Sales

$462,452 Cost of Goods Sold

$230,934

Gross Profit

$231,518 Sales Commissions

$58,852 Delivery ...