Contribution-Margin-Based+Income+Statement

The following definition for a Contribution-Margin-Based Income Statement was taken from: [|http://www.accountingtools.com]

A contribution margin income statement in which all variable expenses are deducted from sales to arrive at a contribution margin, from which all fixed expenses are then subtracted to arrive at the net profit or loss for the period. The income statement format is a superior form of presentation, because the contribution margin clearly shows the amount available to cover fixed costs and generate a profit (or loss).

In essence, if there are no sales, a contibution margin income statement will have a zero contribution margin, with fixed costs clustered beneath the contribution margin line item. As sales increase, the contribution margin will increase in conjunction with sales, while fixed costs remain (approximately) the same.

A contribution margin income statement varies from a normal income statement in the following three ways:


 * 1) Fixed production costs are aggregated lower in the income statement, after the contribution margin:
 * 2) Variable selling and administrative expenses ore grouped with variable production costs, so that ther are a part of the contribution margin: and
 * 3) The gross margin is replaced in the statement by the contribution margin.

The format for a contribution margin based income statement is:

+ Sales __Less: total variable expenses__ Contribution Margin __Less:Total fixed expenses__ Net Profit (loss)

See **Examples** section for a detailed example