Question

In your own words, Explain the difference between the gross margin format and the contribution margin format for the income statement

Answer 1

Difference between the Gross margin format and the Contribution margin Format for the income statement

1:- Under Gross margin format , Gross margin derived from different of Sales and Cost of Good sold whereas under Contribution margin format ,Contribution margin derived from different of Sales and Variable Cost .

2:- Under Gross margin format ,Product cost includes Direct material ,Direct labor and Total manufacturing overhead (Variable and fixed) whereas Under Contribution margin format , Product cost includes the Direct material direct labor and variable manufacturing overhead only.

3:- Under Gross margin format ,Fixed manufacturing overhead would be part of Product cost whearas under Contribution margin format Fixed manufacturing overhead would be part of period cost .

4:-Contribution margin format shows higher yeild percentage (Contribution margin %) in comparison of Gross margin format that shows lower yeild (Gross profit margin %).

5:-Gross margin format shows more accurate profitability in comparison of Contribution margin format.

6:- Contribution margin format is useful for inner management whearas Gross margin useful for both inner and outsiders.