Question

EE 5-1 RTE PE 5-1B Variable costing OBJ. 1 Marley Company has the following information for March: Sales $912,000 Variable cost of goods sold 474,000 Fixed manufacturing costs 82,000 Variable selling and administrative expenses 238,100 Fixed selling and administrative expenses 54,700 Determine (a) the manufacturing margin, (b) the contribution margin, and (c) income from operations for Marley Company for the month of March.

Answer 1

a) Manufacturing Margin :- Here we assumed that you asked about Gross manufacturing margin. Accordingly, we have to answer this.

Gross manufacturing margin can be calculated by subtracting the cost of goods sold from total sales.

Manufacturing margin
S.No.	Particulars	Amount	Amount
A	Sales		$912000
B	Cost of goods sold
	i. Variable cost of goods sold	$474000
	ii. Fixed manufacturing costs	$82000	$556000
C	Manufacturing margin (A-B)		$356000
D	Manufacturing margin ratio (C/A*100)		39.03%

Note - Since cost of goods sold does not include the cost incurred for selling the goods hence we do not added that cost to COGS.

Cost of goods sold + selling and administrative cost = cost of sales

b) Contribution Margin :-

It is calculated by subtracting the variable operating costs from sales.

Contribution Margin
S.No	Particulars	Amount	Amount
A	Sales		$912000
B	Variable costs
	i. cost of goods sold	$474000
	ii. selling and administrative expenses	$238100	$712100
C	Contribution (A-B)		$199900
D	Contribution margin ration (C/A*100)		21.92%

c) Income from Operations :-

Income from Operations (IFO) is simply termed as EBIT ie. Earnings before tax and interest.

It can be calculated by subtracting variable and fixed operating cost from sales/revenue.

Income from Operations
S.No	Particulars	Amount	Amount
A	Sales		$912000
B	Variable costs
	i. cost of goods sold	$474000
	ii. selling and administrative expenses	$238100	$712100
C	Contribution (A-B)		$199900
D	Fixed Cost
	i. manufacturing cost	$82000
	ii. selling and administrative expenses	$54700	$136700
E	Income from Operations ( C-D)		$63200