Contribution Margin Income Statement

Contribution Margin Income Statement Format

A Contribution Margin Income Statement has the same information as a more traditional income statement but presented in a format which allows a business to understand which profit center (i.e. segment, sector, department, division etc) its contribution margin comes from. It is for internal use only, and the exact format will depend on the business requirements.

It is important to understand that the contribution margin income statement relates to a particular profit center and that each line item refers to that center.

Contribution Margin Income Statement Example

A typical contribution margin income statement will have the following format:

Example: Contribution Margin Income Statement
Revenue 100,000
Variable costs 45,000
Contribution margin 55,000
Controllable fixed costs 30,000
Controllable margin 25,000
Non controllable fixed costs 10,000
Contribution by profit center (CPC) 15,000
Untraceable costs 5,000
Operating income 10,000

contribution margin income statement

The following definitions are generally used in the contribution margin income statement:

Variable costs

All variable costs are included, these might include production, selling, and administration variable costs.

Controllable fixed costs

Controllable fixed costs are those which the manager of a profit center can control, for example advertising and marketing costs.

Non controllable fixed costs

Non controllable fixed costs are those which the profit center manager cannot control such as depreciation and tax.

Untraceable costs

Untraceable costs are those which cannot be identified with a particular profit center, for example head office costs might be allocated to a profit center, but are not directly traceable to it.

Uses of the Contribution Margin Income Statement

Contribution Margin

The contribution margin shows the revenue less the variable costs of the profit center. The contribution margin indicates whether a profit center can control its variable costs and make a profit.

It is useful to compare contribution margins to decide which profit centers should remain in operation and which should be closed.

Controllable Margin

The controllable margin is the contribution margin less the controllable fixed costs. As all the costs included are controllable by the profit center manager, it is a useful measure to evaluate the managers performance.

Contribution by Profit Center

The contribution by profit center sometimes referred to as CPC or as Segment margin, is a measure of the profitability of the profit center after deducting all costs traceable to it.

Since it includes non controllable fixed costs, it is a useful measure of the overall performance of the profit center in the longer term.

Last modified October 23rd, 2019 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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