Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 10

Gross Margin and Contribution Margin Income Statements

The following data are from the accounting records of Cunha Products for year 2 (all figures in thousands of dollars).

Units produced and sold	42,500
Total revenues and costs
Sales revenue	$33,000
Direct material costs	8,500
Direct labor costs	4,250
Variable manufacturing overhead	2,125
Fixed manufacturing overhead	5,500
Variable marketing and administrative costs	1,700
Fixed marketing and administrative costs	4,000

Required

Prepare:

a. A gross margin income statement.

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b. A contribution margin income statement.

Step 1 of 2

a.

Under absorption costing (Gross margin income statement), all costs are divided into manufacturing and nonmanufacturing costs. Find cost of goods sold, gross margin and nonmanufacturing costs from this income statement.

Sales revenue		$33,000
Less: Cost of goods sold
Direct materials costs	$ 8,500
Direct labor costs	$ 4,250
Variable manufacturing overhead	$ 2,125
Fixed Manufacturing overhead	$ 5,500	$20,375
Gross margin		$12,625
Less: Marketing and administrative costs
Fixed marketing and administrative costs	$ 4,000
Variable marketing and administrative costs	$ 1,700	$ 5,700
Operating profit		$ 6,925