 Hello, in this lecture, we'll focus in on the contribution margin income statement. We will start off by taking this information in the trial balance and making a normal income statement from it from a manufacturing company or for a manufacturing company and then doing a contribution margin income statement so that we can compare and contrast those and note that the contribution margin income statement is not generally a financial statement principle statement. What it is is something on the managerial side that can really be helpful for decision making on the managerial side. So we want to note the similarities and the differences between these two statements that are taken into account the same information the same information from the trial balance. We want to get the idea that we are using the same information from the trial balance to create these two formats of income statements for different users for users of different that have different needs. We will also calculate the contribution margin per unit as well using this information. So we will be using the trial balance here and we're focusing in on the income statement accounts down here to format these two formats of an income statement. We're going to start off with the normal income statement so we can use that to compare and contrast to the contribution margin income statement. So if we do this, we're going to first start off with of course revenue. So revenue and we could actually use formulas. So we could just say this equals the revenue account here. So we're going to take the revenue. I'm going to pull it all the way out to the end. These aren't debits and credits over here. We're just going to format this in different columns in order to help out with the format of this. Now this is going to be a credit on this side. I want to flip the sign because I don't want to have a credit. So I'm going to put a negative and point to this number. So I'm just going to make it a positive number over here and how to credit or a negative for Excel. So here's our revenue account. Then after revenue, we're going to have cost of goods sold sold colon and the cost of goods sold are going to include the now as we go, we might want to make these show that these have been found a home over here. Once we find a home for everything, we should have net income here adding up to 72 to 70 of income. So I'm going to highlight these as we go. I'm going to right click on it. I'm going to take the text here and highlight it to yellow as we go. A yellow is going to indicate that we found a home for it. That's what that's going to indicate as we go through all of the income statement accounts here. So we have the direct materials. Now I'm going to pull that in to the inside. I'm going to say this in e four equals the direct materials that'll pull over the text. Now I'm going to indent that so in order to indent that I'm going to go up to the home tab going to hit the drop down going to go to the alignment group and indent so that we could see that indentation we're going to pull that I'm actually going to go into the second column column g and say that that equals the 247 950. We are then going to go to direct wages. I'm going to I could right click and make that yellow. We found a home for that direct wages e five equals direct wages here and enter and we're going to go into the second column in g five and that equals the direct wages. Then I'm going to right click on this again make it yellow just finding these as we go in a systematic way we're going to go to the home tab we're going to go to the alignment group and indent then we have the overhead. So overhead I'm going to say that equal what we have to type this one in overhead. So the overhead is going to equal normally in a normal income statement. Let's see what we might think of as overhead sales commission that's not going to be part of the inventory process not going to be part of cost goods sold taxes on the factory that's something that is part of the inventory that anything that says factory on it is usually going to be in the cost of goods sold. We might have maintenance on the factory again we're going to have to put that into the cost of goods sold in some way depreciation on the factory that's going to have to go into the cost goods sold in some way lease on factory equipment that's going to have to go into the inventory in some way and then we got the administrative salaries that's going to be an administrative cost a period cost rents on administrative office administrative rent on sales office and income tax those are all things that will not generally be in the cost of goods sold so anything we have in there we're going to include that I'm going to go ahead and indent these I'm going to say home and indent those and then what did we find there we said the taxes the machinery the depreciation the lease we could see that's adding up to the 154 5 the 154 5 going to right click on that going to make that yellow all right so we found a home for all those then we're going to have the total cost of goods sold now you could select control enter to go off the cell rather than on the cell then go to the home tab I'm going to indent that two times then we could also underline it I'm in g6 I'm going to go to the home tab font group and underline and then we could sum that up I'm going to sum it up in the outer column in h7 equals the sum of and we're going to add these up right there the 247 the three and what and so on all right then we're going to have the gross profit gross profit is going to equal the revenue minus the cost of goods sold that will give us our gross profit next we've got the operating expenses colon and that's going to include basically the period cost which is generally selling and administrative will oftentimes break those out so I'm going to break those out here selling expenses colon I'm going to break that out by going to the home tab I'm going to indent that one time and then we're going to go to everything that's selling related so that looks like I'm going to say that looks like hmm how about sales commission looks like it should go on there I'm going to go into the home tab I'm going to go alignment indent that two times that's why we have this inner column here so way over here in f11 f11 equals that 95 seven that kind of rhymed f11 equals 95 so we're going to right click and we're going to make that yellow and then we have the rent on the sales so we're going to say this equals the rent on the sales office here that sounds like a selling item and so that's going to be the 77 going to right click and highlight that click on the e12 home tab alignment indent indent and then we have that then we're going to have the total selling expenses I'm going to select control enter to be on the sale then go to the home tab and alignment indent that three times so that's now it's going to go over into the second column we're going to we can also underline this so I can go to the home tab and font group and underline then we're going to go to the outer column and sum those up we're going to add those two up with equals the sum function sum function the 95 seven plus the 77000 gives us the 1727 then we're going to have the administrative expenses I'm going to select control enter on that one and we're going to go to the home tab and we're going to indent that one time because once again this is under really the operating expenses as part of operating expenses and then administrative expenses is going to equal the administrative salaries I'm going to go back on that and go to the home tab alignment indent two times and that in f15 is going to equal the 107 and then we can highlight this and say okay that's yellow then we're going to have the rent on the administrative office equals that going to go back on it home tab alignment indent indent and then we're going to say in f16 that find a home for that 50 and I'm going to click on that and make that yellow and that's going to be that's going to be all of that the taxes will break out separately so I'm going to go to the home tab we're going to underline that and we're going to have the total administrative expense I'm going to select control enter I'm going to go to the home tab and we're going to indent that two times or three times in this case three times and then we're going to bring that out to the outer column and sum that up so we're going to add these two up and enter so we have that then we can have the total operating total operating expenses and I'm going to tab that over and we're going to bring that all the way out to the outer column and now we're going to bring that to the outer column now we have these subcategories so I'm just going to add up this column remember we only add up one column at a time generally so we're going to add up the operating for the selling and the administrative so I'm going to go back over here and we could underline this as well as I could go to the home tab font and underline then we're over here in h18 equals the sum of the 172.7 and the 157.000 and that gives us the 129.7 now I'm going to underline that going to go to the home tab font underline and that's going to give us the income before income tax so we're going to take I'm going to go ahead and underline this to we're going to take the home tab font underline because we're going to take the gross profit here that's what we left off in this outer column minus the other operating expenses and so we're going to be down here in h19 equals the 451.50 minus the 329.7 that gives us the income before taxes and that's going to be often the case we're going to have income before taxes because the taxes are often going to be calculated based on that now we gave the tax number up here a lot of problems will just say hey calculate it and then figure the tax being a percent like 30 between 30 and 40 percent often most books will have the calculation of the tax so the income tax then I'm going to say is here I'm just going to say that equals the 478.180 and if you were to take out the calculator and try to figure out okay well 48.180 over the 120.450 would be a tax rate of 40 percent so the problem could say okay give the tax rate of 40 percent on the income before taxes and then we're going to go to the home tab we're going to go to the font and underline and that will give us the net income so net and obviously we found a home for this now so we found a home for everything so that means that if we then equal the sum I'm sorry not the sum we can't so we have to subtract equals the 120.450 before taxes minus the taxes that will give us the 72.270 that of course equals this number here now what we're going to do we're going to do the same thing now but we're going to convert this this to an income statement on a contribution margin we're going to come out to the same number but I want to compare and contrast this is gap and we need this is for gap for external users now I'm going to hide this I'm going to go to E I'm going to go to I right click and hide and the key is I just want to show that we're using the same information we're going to use this same yellow information I'm going to convert it back to some other number probably probably back to blue as we do the same thing but we're going to do it for an income statement that is now in the format of a contribution margin income statement and of course the contribution margin income statement also starts off with a familiar area that area being sales so we're going to have sales and and that's going to be the revenue account so the revenue account I'm going to do the same thing negative I'm going to flip the sign of this number and there it is and then I'm going to I'm going to take this I'm going to right click and I'm going to convert it back to in this case it was blue