if a company has two sales departments of software and video games, and during 1-month, operating results for the software is, sales = 400,000, variable cost as a percentage of sales = 65%, traceable fixed costs = 20,000, fixed costs = 42,000, and the operating results for video games is, sales = 200,000, variable cost as a percentage of sales = 56%, traceable fixed costs = 16,000, fixed costs = 42,000, how do I make a segmented income statement following the contribution margin approach showing percentages and dollar amounts? and how do I find the companies income from operations?
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
if a company has two sales departments of software and video games, and during 1-month, operating results for the software is, sales = 400,000, variable cost as a percentage of sales = 65%, traceable fixed costs = 20,000, fixed costs = 42,000, and the operating results for video games is, sales = 200,000, variable cost as a percentage of sales = 56%, traceable fixed costs = 16,000, fixed costs = 42,000, how do I make a segmented income statement following the contribution margin approach showing percentages and dollar amounts? and how do I find the companies income from operations?
Solving Company Income from Operations
Segmented income statement means when the income statement is vertically separated into segments (departments) and the last column shows the total of both departments
Using contribution margin approach we calculate the net profit as follows
Contribution = Sales - Variable Cost
Companies income from operations = Contribution - Traceable Fixed cost
Net Profit = Companies income from operations - Indirect fixed cost
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