management accounting 1 homework tutorials for cost volume profit analysis chapter 18.

EXERCISE 18.35 Contribution margin statement; operating leverage (appendix): manufacturing A very basic exercise to familiarise you with the contribution income statement format 1. (a) Traditional income statement: Pacific Rim Publications Income Statement for the year ended December 31, 20XX Sales R 5,000,000 Less: Cost of goods sold -3,750,000 Gross margin Less: Operating expenses: Selling expenses -375,000 R 1,250,000 Administrative expenses -375,000 -750,000 Net profit R 500,000 (b) Contribution income statement: Pacific Rim Publications Income Statement for the year ended December 31, 20XX Sales R 5,000,000 Less: Variable expenses: Variable manufacturing -2,500,000 Variable selling -250,000 Variable administrative -75,000 -2,825,000 Contribution margin R 2,175,000 Less: Fixed expenses: Fixed manufacturing -1,250,000 Fixed selling -125,000 Fixed administrative -300,000 -1,675,000 Net profit R 500,000 2. Error! Objects cannot be created from editing field codes. 3. Error! Objects cannot be created from editing field codes. = 12%  4.35 = 52.2% 4. Most operating managers prefer the contribution income statement for answering this type of question. The contribution format highlights the contribution margin and separates fixed and variable expenses.