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

Exercise 11

Gross Margin and Contribution Margin Income Statements

Tosca Beverages reports the following information for July:

Units produced and sold	18,800
Per unit revenue and costs:
Sales revenue	$3.20
Direct material costs	0.20
Direct labor costs	0.16
Variable manufacturing overhead	0.06
Fixed manufacturing overhead based
on a volume of 18,800 units	0.92
Variable marketing and administrative costs	0.48
Fixed marketing and administrative costs
based on a volume of 18,800 units	1.00

Required

Prepare:

a. A gross margin income statement.

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b. A contribution margin income statement.

Step 1 of 2

Gross margin income statement: -

It is a traditional method of costing and it is also known as absorption costing. Under this method, the cost of the manufacturing of goods is processing after seeing the total cost i.e. fixed and variable costs.

Contribution margin income statement: -

It is also known as marginal costing. Under this method, the cost of the manufacturing of goods is processing after considering variable cost to compute contribution margin and then allocation of fixed cost.