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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Items on variable costing income statement

In the following equations, based on the variable costing income statement, identify the items designated by X:

  1. a. Net Sales −X = Manufacturing Margin
  2. b.  Manufacturing Margin −X = Contribution Margin
  3. c.  Contribution Margin −X = Income from Operations

To determine

Variable costing income statement: It refers to an income statement that is prepared by a company for decision-making process and for other internal purposes. In this statement, the cost of goods manufactured includes only the variable costs such as direct materials, direct labor, and variable manufacturing/factory overhead. However, the fixed factory overhead is considered as period expense.

To identify: the items designated by X.

Explanation

Identify the items designated by X for:

a.

Net Sales – X = Manufacturing margin

Manufacturing margin is the difference between the net sales and the variable cost of goods sold. Therefore, the X that is deducted from the Net sales is the variable cost of goods sold.

b.

Manufacturing Margin – X = Contribution Margin

Contribution Margin is the difference between the manufacturing margin and the variable selling and administration expenses. Therefore, the X that is deducted from the Manufacturing margin is the variable selling and administration expenses.

c.

Contribution Margin – X = Income from operations

Income from operations is the difference between the contribution margin and the fixed cost. The fixed cost includes the fixed factory overhead and the fixed selling and distribution overhead. Therefore, the X that is deducted from the contribution margin is the fixed cost...

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