Answer (B) is correct . Contribution margin is sales minus variable costs. Direct costing considers only variable costs as product costs, so contribution margin appears in a direct costing income statement. Absorption costing treats both variable and fixed costs as product costs. Thus, variable costs are not stated separately, and contribution margin would not appear in the income statement. Accordingly, the CM is $470,000 ($1,000,000 net revenues – $400,000 variable CGS – $130,000 variable S&A costs).
Answer (A) is incorrect because The total variable manufacturing cost of goods sold is $400,000. Contribution margin equals net revenue minus variable costs.
Answer (C) is incorrect because The total variable costs for the year is $530,000. Contribution margin equals net revenue minus variable costs.
Answer (D) is incorrect because Variable selling and administrative costs must also be subtracted from net revenue in determining contribution margin.
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Based upon the information presented above, the contribution margin for the company was
