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Direct materials $ 37 per unit Fixed manufacturing overhead costs $ 225,000 Sales price $ 195 per unit Variable manufacturing overhead $ 22 per unit Direct labor $ 26 per unit Fixed marketing and administrative costs $ 190,000 Units produced and sold $ 5,500 Variable marketing and administrative costs $ 8 per unit Required: a. Prepare a gross margin income statement. b. Prepare a contribution margin income statement.

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Answer:

A.Gross Margin $385,550

B. Contribution margin $566,500

Explanation:

a. Preparation of a gross margin income statement

Gross margin income statement

Sales 1,072,500

(5500*$ 195 per unit)

Less Variable expenses:

Direct Material 198,000

(5500*36)

Direct Labour 143,000

(5500*26)

Variable manufacturing overhead 121,000

(5500*22)

Fixed Manufacturing overhead 224,950

(5500*40.90)

(225,000/5500=40.90)

Gross Margin $385,550

Therefore Gross Margin will be $385,550

b. Preparation of a contribution margin income statement.

Contribution margin income statement

Sales 1,072,500

(5500*$ 195 per unit)

Less cost of goods sold:

Direct Material 198,000

(5500*36)

Direct Labour 143,000

(5500*26)

Variable manufacturing overhead 121,000

(5500*22)

Variable Marketing and administrative cost 44,000

(5500*8)

Contribution margin $566,500

Therefore Contribution margin will be $566,500

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