Question

Larcker Manufacturing's cost accountant has provided you with the following information for January operations.

Direct materials	$	36	per unit
Fixed manufacturing overhead costs	$	200,000
Sales price	$	200	per unit
Variable manufacturing overhead	$	19	per unit
Direct labor	$	32	per unit
Fixed marketing and administrative costs	$	185,000
Units produced and sold	$	5,500
Variable marketing and administrative costs	$	7	per unit

Required:

a. Prepare a gross margin income statement.

b. Prepare a contribution margin income statement.

Required A Required B Prepare a gross margin income statement. Gross Margin Income Statement

Answer 1

Gross Margin means profit earned from sales after deduction its cost of goods sold , cost of goods sold comprises of all the direct expenses which are bear by company during production of goods i.e material , labour etc

Statement showing gross Margin Income satement

Particulars	qty sold	rate per qty	amount ($)	total amount ( $ )	explanation
Sales	5500	200		1100000	qty given
Less cost of goods sold:
Direct Material	5500	36	198000#		# 5500*36
Direct Labour	5500	32	176000#		# 550*32
variable manufacturing overhead	5500	19	104500#		# 5500*19
Fixed Manufacturing overhead	5500	36.36 #	200000		# 200000/5500
Total cost of goods sold				-678500
Gross Margin				421500

all the variable & fixed  expenses relating to maketing cost will not be deducted  while calculating gross margin

b) Contribution income statement comprises of (Sales - variable expenses ) , its the profit which arrived after deducting all variable expenses from sales as variable expenses varies as per the qty but fixed expenses are those expenses which are beared by company if no qty is sold

Statement showing contribution  Income satement

Particulars	qty sold	rate per qty	amount ($)	total amount ( $ )	explanation
Sales	5500	200		1100000	qty given
Less Variable Expenses:
Direct Material	5500	36	198000#		# 5500*36
Direct Labour	5500	32	176000#		# 550*32
variable manufacturing overhead	5500	19	104500#		# 5500*19
Variable Marketing and administrative cost	5500	7	38500#		# 5500*7
Total Variable expense	5500	94		-517000
Contribution	5500	106*		583000	sales- variable exp

* conribution per qty = 200-94 =106