Question

Practice Question 26 On a CVP income statement O Sales - Fixed costs = Contribution margin. O Sales - Variable costs = Contribution margin. O Sales - Cost of goods sold = Contribution margin. O Sales - Variable costs - Fixed costs = Contribution margin.

Answer 1

On a CVP Income statement

Sales- Variable Cost = Contribution Margin

A CVP or cost-volume-profit income statement has the same information as a more traditional income statement, but is designed to show the effects of changes in costs and volume on the profit of a business.

A CVP income statement might be produced along the following lines.

	Total	Per Unit
Revenue (500 units)	5,000	10.00
Cost of goods sold	1,000	2.00
Selling expenses	600	1.20
Administration expenses	400	0.80
Variable expenses	2,000	4.00
Contribution margin	3,000	6.00
Cost of goods sold	800
Selling expenses	1,200
Administration expenses	300
Fixed expenses	2,300
Net income	700

The cost volume profit statement format has many uses allowing a business for instance to assess selling prices, changes in level of production output, and identifying the best product mix.