# Managerial Accounting Chapter 2.3 (Contribution Margin Analysis

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Operating Income Equations

Operating Income = Sales revenue – Total expenses Operating income = Sales revenue – Total variable expenses – Total fixed expenses Operating income = [(Sales price per – Variable cost per unit) x #of units sold] – fixed expenses
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Contribution Margin

The difference between sales and variable costsâ€”the amount that remains to cover fixed costs and provide a profit.
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Contribution Margin & Contribution margin per unit formulas

Contribution margin = Sales revenue – Total variable expenses Contribution margin per unit = sales price per unit – Variable cost per unit
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Operating Income formula using contribution margin per unit

[Contribution margin per unit x #of units sold] – Fixed Expenses
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Contribution Margin Ratio

Contribution Margin Ã· Sales Revenue Contribution margin per unit Ã· Sales price per unit
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Contribution Format Income Statement

An income statement that classifies costs by behavior
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Contribution Format Income Statement vs GAAP Income Statement

Contribution Format Income statement helps managers predict the financial results of their decisions. It’s also based on cost behavior Meanwhile the GAAP Income statement doesn’t help to predict financial results, since it’s based on a cost function.
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Contribution Format Income Statement Example

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Variable Cost Ratio

Total Variable Cost Ã· Total Sales
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The contribution margin is calculated as (a)Sales revenue âˆ’ Cost of goods sold. (b)Sales revenue âˆ’ Variable cost of goods sold. (c)Sales revenue âˆ’ Total variable expenses. (d)Sales revenue âˆ’ Total fixed expense

C.
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The amount of net income presented on a functional income statement will be different from the amount of net income presented on a contribution format income statement. True or False?