Question

The following data are from the accounting records of Niles Castings for year 2: 86,000 Units produced and sold Total revenues and costs Sales revenue Direct materials costs Direct labor costs Variable manufacturing overhead Fixed manufacturing overhead Variable marketing and administrative costs Fixed marketing and administrative costs $ 320,000 64,000 34,000 11,000 48,000 17,000 31,000 Required: a. Prepare a gross margin income statement. Gross Margin Income Statement b. Prepare a contribution margin income statement Contribution Margin Income Statement MacBoo

Answer 1

Gross Margin = Sales Revenue minus Cost of Goods Sold. Cost of goods sold includes Direct Material, Direct Labor and Manufacturing Overhead (both variable + fixed) And Gross Margin will generally be arrived at totals and not per unit basis.

Contribution Margin = Sales Revenue minus Variable Expenses only. It doesn't include fixed expenses. Moreover Contribution Margin will generally be arrived at per unit basis and not on totals.

With that said, please find attached herewith Gross Margin income statement and Contribution Margin income statement:

320,000.00 Gross Margin Income Statement Sales Revenue Less: Cost of Goods Sold Direct Material 64,000.00 Direct Labor 34,000.00 Variable Manufacturing OH 11,000.00 Fixed Manufacturing OH 48,000.00 Total Cost of goods sold Gross Margin 157,000.00 163,000.00 86000 Per unit 3.72 Contribution Margin Income Statement Total units produced and sold Total Sales Revenue 320,000.00 Less: Variable Expenses Direct Material 64,000.00 Direct Labor 34,000.00 Variable Manufacturing OH 11,000.00 Variable Marketing and Admin OH 17,000.00 Total variable Expenses 126,000.00 Contribution Margin 194,000.00 0.74 0.40 0.13 0.20 1.47 2.26