Variable and fixed cost



Variable and fixed cost

Solution A

Contribution Margin Income Statement

Herrestad Company

For year 2011

Price Per Unit

$250.00

Number of Units Sold

8000

Total Sales

$2,000,000

Less: Variable Production Costs

$1,440,000

Less: Variable Selling Costs

$80,000

Total Variable Costs

$1,520,000

Contribution Margin

$480,000

Less: Fixed Production Costs

$200,000

Less: Fixed Selling and Administrative Costs

$100,000

Total Fixed Costs

$300,000

Income Before Taxes

$180,000

Explanation of the difference in net income of the company

As given in the data, the net income from absorption costing is $220000, whereas, the contribution margin net income of the company is $180,000. This, difference of $40, 000 is briefly explained as follows (Linda, 2008).

For the current fiscal year, ...