How do I prepare a contribution-margin format income statement?
submitted by Criselda Garcesa

hepNwuf

You've gotta start by listing all variable costs associated with your products/services and then subtract them from total sales. This gives you the contribution margin.

Now subtract your fixed costs from the contribution margin to get your net operating income.

This format normally separates variable expenses from fixed expenses. It looks something like this:

Sales
? Variable Expenses (cost of goods sold, variable selling and admin expenses)
= Contribution Margin

? Fixed Expenses (fixed overhead, fixed administrative expenses)
= Net Operating Income

John Banks

First, find out how much money you made from sales. Then, subtract all the costs that change with sales (like materials and wages). That gives you the contribution margin.

Next, subtract the fixed costs (like rent and salaries that stay the same no matter sales). What's left is your profit (net income).

It's a way to see how sales cover variable costs first, then fixed costs.

Lizzy

Prepping a contribution-margin income statement goes kind of like this: First, you look at how much money you earned from selling your products. Then, you figure out all the costs that go up and down depending on how much you sell. That might be stuff like raw materials or commissions. Now subtract those costs from your sales. That's your contribution margin.

That number shows how much money is left to cover your fixed costs, like rent and payroll. After paying those fixed costs, whatever remains is your profit. Yay. The whole idea is to see how sales cover variable costs first, then fixed costs.