7. Complete the Contribution Margin Income Statement for two customers based on

Question

7. Complete the Contribution Margin Income Statement for two customers based on the following information: a. Assume indirect costs are $55,000 and cannot be traced to a specific segment. b. Calculate the total net profit. c. Remember to include variable gross profit, gross segment contribution, net segment contribution, total net profit, and net segment contribution ratio. d. Which firm has the better net segment contribution ratio and why? Company A Revenue - $250,000 Variable Direct Cost - $19,000 Variable Direct Cost $28,000 Fixed Direct Cost - $54,000 Variable CoGS- $68,000 Company B Revenue - $310,000 Fixed Direct Cost $46,000 Variable CoGS - S65,000

Explanation / Answer

Less: Variable CoGS

Less: Variable Direct Cost

Less: Fixed Direct Costs

Less: Indirect Fixed Costs

Company B is better than Comapny A from the point of view of Net Segment Contribution Ratio.

* Net Segment Contribution Ratio = Net Segment Contribution / Revenue x 100%

Company A Company B Revenue $250,000 $310,000

Less: Variable CoGS

$68,000 $65,000 Variable Gross Profit $182,000 $245,000

Less: Variable Direct Cost

$19,000 $28,000 Gross Segment Contribution $163,000 $217,000

Less: Fixed Direct Costs

$54,000 $46,000 Net Segment Contribution $109,000 $171,000

Less: Indirect Fixed Costs

$55,000 $55,000 Net Profit $54,000 $116,000 Net Segment Contribution Ratio * 43.60% 55.16%

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