Chapter 21, Problem E21.31E

To determine

Contribution margin Ratio and Operating income Under Variable costing:

The Contribution margin is the excess of sales revenue over variable cost of goods sold (i.e. variable product cost and variable period cost). The contribution margin refers to the amount which contributes towards the fixed cost and operating income of the business. The Contribution margin ratio is a relative percentage of contribution over sales revenue.

Under variable costing, the income statement is prepared after computing the contribution margin and then fixed cost shall be deducted from the contribution margin to arrive at the net operating income/ (loss).

Requirement1:

TheComputation of contribution margin ratio.

To determine

Requirement2:

The Contribution margin income statement to be prepared.