Chapter 21, Problem S21A.21SE

To determine

Contribution Margin:

Contribution Margin is the amount of sales after adjusting variable costs. Contribution Margin is calculated with the help of following formulas:

$\begin{array}{l}\text{Contribution Margin = Net sales revenue – Variable cost of goods sold }\\ \text{ - Variable Selling and administrative Costs}\end{array}$

Operating Income: Under variable costing, Operating Income is calculated by subtracting fixed costs from the contribution margin. The formula for operating income is as follows:

$\begin{array}{l}\text{Operating Income = Contribution Margin –Fixed Cost of goods sold }\\ \text{ - Fixed selling and administrative costs}\end{array}$

To determine:

The Contribution Margin and Operating Income using the Variable Costing method