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Dabney Company

Problem 16-6 Contribution Margin and Functional Income Statements
The following information is available for Dabney Company for 2006:
Sales revenue (at $20 per unit) $151,200
Fixed manufacturing costs 24,000
Variable manufacturing costs (at $8 per unit) 60,480
Fixed selling expenses 70,000
Variable selling expenses (at $2 per unit) 15,120
Required:
1. Prepare a contribution margin income statement.
2. Prepare a functional income statement.
3. Calculate the number of units sold.
4. Calculate the contribution margin per unit.
5. Interpretive Question: Why is a knowledge of the contribution margin more useful than a knowledge of the markup per unit when management has to make a decision about profitability?

Solution Preview

Problem 16-6 Contribution Margin and Functional Income Statements
The following information is available for Dabney Company for 2006:

Sales revenue (at $20 per unit) $151,200
Fixed manufacturing costs 24,000
Variable manufacturing costs (at $8 per unit) 60,480
Fixed selling expenses 70,000
Variable selling expenses (at $2 per unit) 15,120

Required:
1. Prepare a contribution margin income statement.

Dabney Company
Income Statement
For the Year Ended December 31, 2006

Sales Revenue . . . . . . . . . . . . . . . . . . . . . . . . ........ . . . . . . . . . . . . . . . . 151,200
Total Variable Costs
Variable manufacturing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,480
Variable Selling Expenses . . . . . . . . . . . . . . . . . . . . ...

Solution Summary

This solution is comprised of a detailed explanation to prepare a contribution margin income statement, prepare a functional income statement, calculate the number of units sold, calculate the contribution margin per unit, and answer why is a knowledge of the contribution margin more useful than a knowledge of the markup per unit when management has to make a decision about profitability.

$2.19