The following data are for Nets Company for the current year: Sales (20,000 unit

Question

The following data are for Nets Company for the current year:

Sales (20,000 units) $750,000

Direct materials 270,000

Direct labor cost 90,000

Variable manufacturing overhead 27,000

Fixed manufacturing overhead 36,000

Variable selling and administrative

expenses

45,000

Fixed selling and administrative

expenses

150,000

The company produced and sold 20,000 units.

a. Prepare an income statement for the current year using the contribution margin format.

b. Prepare an income statement for the current year using the traditional format.

c. What additional information does the contribution margin format provide compared to the

traditional format?

Explanation / Answer

Statement showing income under cont format Particulars Amount Sales    750,000.00 Variable Costs: Direct Materials    270,000.00 Direct Labour      90,000.00 Variable Manu O/H      27,000.00 Variable selling and Admin      45,000.00 Variable Costs    432,000.00 Contribution = Sales - VC    318,000.00 Fixed Costs: Fixed Manufacturing Overhead      36,000.00 Fixed selling and Admin Exp    150,000.00 Fixed Costs    186,000.00 Income (Cont- FC)    132,000.00 b) Statement showing income under traditional format Particulars Amount Sales    750,000.00 Less :COGS Direct Materials    270,000.00 Direct Labour      90,000.00 Variable Manu O/H      27,000.00 Fixed Manufacturing Overhead      36,000.00 COGS    423,000.00 Gross Profit    327,000.00 Marketing and Selling Exp: Variable selling and Admin      45,000.00 Fixed selling and Admin Exp    150,000.00 Marketing and Selling Exp    195,000.00 Income      132,000.00 c) It provides Total variable costs and Total Fixed Costs which makes it easier to compute BEP etc

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