Question

Larcker Manufacturing's cost accountant has provided you with the following information for January operations. Direct materials $ 39 per unit Fixed manufacturing overhead costs $ 220,000 Sales price $ 200 per unit Variable manufacturing overhead $ 21 per unit Direct labor $ 28 per unit Fixed marketing and administrative costs $ 190,000 Units produced and sold $ 5,500 Variable marketing and administrative costs $ 8 per unit Required: a. Prepare a gross margin income statement. b. Prepare a contribution margin income statement.

Answer 1

a) gross margin income statement

Sales revenue $1,100,000

COGS ($704,000)

Gross profit $396,000

Operating expenses:

• variable M&A $44,000
• fixed M&A $190,000 ($234,000)

Operating income $162,000

b) contribution margin income statement

Sales revenue $1,100,000

Variable costs:

• direct materials $214,500
• direct labor $154,000
• variable overhead $115,500
• variable M&A $44,000 ($528,000)

Contribution margin $572,000

Period costs:

• fixed overhead $220,000
• fixed M&A $190,000 ($410,000)

Operating income $162,000

Step-by-step explanation:

sale price per unit = $200

total variable costs per unit:

• direct materials $39
• direct labor $28
• variable overhead $21
• variable marketing and adm. $8
• total = $96 per unit

contribution margin per unit = $200 - $96 = $104

period costs = $220,000 (overhead) + $190,000 (marketing and adm.) = $410,000

total sales revenue = $1,100,000

total COGS:

• direct materials $39 x 5,500 = $214,500
• direct labor $28 x 5,500 = $154,000
• variable overhead $21 x 5,500 = $115,500
• fixed overhead = $220,000
• total = $704,000

operating expenses:

• variable marketing and adm. $8 x 5,500 = $44,000
• fixed marketing and adm. = $190,000
• total $234,000