Chapter 12, Problem 12.3ME

To determine

Concept Introduction:

Contribution Margin:

Contribution margin can be defined as the difference between sales and variable costs. The portion i.e. left after deducting variable costs of the product from the sales, it is termed as contribution margin.

It is measured by deducting variable costs from selling price.

  $\text{Contribution margin=Selling Price–Variable costs}$

It helps managers to eliminate the unprofitable products and to undertake the product which has high profitability.

Contribution margin income statement:

Contribution margin income statement can be defined as the income statement which explains elements like contribution margin from the sales unlike the traditional income statement.

To prepare:

May income statement for China Imports, Inc. in the contribution margin format