March 18 - • Contribution margin-amount remaining from...

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Comparison of the Contribution Income Statement with the Traditional Income Statement Traditional Approach (costs organized by function) Contribution Approach (costs organized by behavior- Ex: fixed and variable) Sales $ 100,000 Less cost of goods sold 70,000 Gross margin 30,000 Less operating expenses 20,000 Net operating income 10,000 Sales $ 100,000 Less variable expenses 60,000 Contribution margin 40,000 Less fixed expenses 30,000 Net operating income 10,000 Traditional Format - organized by function- used for external reporting Contribution Format - costs by behavior- used by management
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Unformatted text preview: • Contribution margin-amount remaining from sales revenue after variable expenses deducted to cover fixed costs and provide income Break-even point = level of sales at which profit is zero • Once reached- each additional unit sold increases the company’s profit by the amount of the unit contribution margin • Profit (@ sales volume above B-E) = # units sold (in excess of B-E) x CM per unit Equation method- translates the contribution format income statement into equation form...
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