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    Dabney Company

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    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?

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    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

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