CONTRIBUTION MARGIN APPROACH

The Contribution Margin Approach

The Contribution Margin Approach

Income Statements

Variable Costing (contribution)

 

December 20XX

Sales (345000 x $29)

$10,005,000

Variable Costs

 

Variable Manufacturing Costs (345000 x $4.9)

1,690,500

 

Cost of Goods Available for Sale

1,690,500

 

Ending Inventory (55000 x $4.9)

269,500

 

Variable Cost of Goods Sold

1,421,000

 

Variable Operating Costs (345000 x $1.2)

414,000

 

Total Variable Costs

1,835,000

Contribution Margin

8,170,000

Fixed Costs

 

Fixed Manufacturing Costs

1,600,000

 

Fixed Operating Costs

1,200,000

 

Total Fixed Costs

2,800,000

Operating Income

$5,370,000

 

 

Absorption Costing (traditional)

 

December 20XX

Sales (345000 x $29)

$10,005,000

Cost of Goods Sold

 

Variable Manufacturing Costs (345000 x $4.9)

1,690,500

 

Fixed Manuf. Costs

1,600,000

 

Cost of Goods Available for Sale

3,290,500

 

Ending Inventory (55000 x 4.9 + 4)

489,500

 

Cost of Goods Sold

2,801,000

Gross Profit

7,204,000

Operating Costs

 

Variable Operating Costs (345000 x $1.2)

414,000

 

Fixed Operating Costs

1,200,000

 

Total Operating Costs

1,614,000

Operating/Net Income

$5,590,000

Ratios

Gross Profit Ratio

=

Gross ...