Chapter 21, Problem S21A.18SE

To determine

Contribution margin 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.

Under variable costing, the income statement is prepared based on the fact that only variable manufacturing cost is taken as inventoriable cost and is used for ending inventory. Therefore, all the fixed manufacturing and selling and admin cost shall be deducted from the contribution margin as computed above to arrive at the net operating income of the business (irrespective of ending and beginning units of finished goods in hand).

The Contribution margin and operating income to be computed.