
To Prepare:
Contribution Income statement for the quarter ended 31 March

Answer to Problem 15E
Solution:
Particulars | Per unit | Total |
Sales | 750 | 150000 |
Direct Materials | 500 | $100,000 |
Variable Selling Expense | 50 | $10,000 |
Variable Administrative Expense | 10 | $2,000 |
Contribution | 190 | $38,000 |
Fixed Selling Expense | $20,000 | |
Fixed Administrative Expense | $20,000 | |
($2,000) |
Explanation of Solution
- Given:
Sales = $150,000
Sales Price per unit = $750
Variable Selling Expense per unit = $50
Variable Administrative Expense per unit = $10 Purchases = $100,000
- Formula Used:
Calculations:
- Variable Selling Expense = 200 @$50 = $10,000
Variable Administrative Expense = 200 @$10 = $2,000
Direct Materials = $100,000 / 200 = $500 per unit
Contribution = $150,000 - $100,000 - $10,000 - $2,000 = $38,000
- Variable costs are costs that are impacted by the volume of goods produced and have a direct correlation with the number of goods produced.
- Fixed costs are costs that have to be incurred irrespective of the volume of goods produced.
- The costs considered for calculation of contribution are variable costs.
- Contribution is the difference between the Sales and Variable Costs including cost of Materials
Hence the contribution format income statement has been prepared for the quarter ended 31 March.
3)
Contribution and Fixed and Variable Costs in Manufacturing
- Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.
- Examples are costs of direct material and direct labor.
- Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.
- Examples are costs of factory rent,
depreciation on plant and equipment
Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.
- Examples are Direct materials and Manufacturing
Overhead
- Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.
Contribution Margin Per unit

Answer to Problem 15E
Solution:
The contribution Margin per unit is $190
Explanation of Solution
Sales = $150,000
Sales Price per unit = $750
Variable Selling Expense per unit = $50
Variable Administrative Expense per unit = $10 Purchases = $100,000
Formula Used:
Calculations:
- Variable Selling Expense = 200 @ $50 = $10,000
Variable Administrative Expense = 200 @$10 = $2,000
Direct Materials = $100,000 / 200 = $500 per unit
Contribution = $150,000 - $100,000 - $10,000 - $2,000 = $38,000
Particulars | Per unit | Total |
Sales | 750 | 150000 |
Direct Materials | 500 | $100,000 |
Variable Selling Expense | 50 | $10,000 |
Variable Administrative Expense | 10 | $2,000 |
Contribution | 190 | $38,000 |
- The costs considered for calculation of contribution are variable costs.
- Contribution is the difference between the Sales and Variable Costs including cost of Materials
- Contribution per unit is the total Contribution divided by the Units Produced.
Hence the Contribution margin per unit is calculated.
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Chapter 2 Solutions
Connect 1-Semester Access Card for Managerial Accounting
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