Contribution statement layout

Question 1

What is the first thing you should look for in a contribution statement question?

Answer 1

The limiting factor

Question 2

How do you work out the total variable cost per unit on the contribution statement?

Answer 2

materials
Labour cost (might need to times hours be cost per hour)
Machine cost (might need to times hours needed by cost per hour)
Add these up gives total variable costs

Question 3

How do you work out contribution on the contribution per unit on the contribution statement?

Answer 3

Take calculated total variable cost (per unit) away from selling price

Question 4

How do you calculate contribution per limiting factor?

Answer 4

Divide contribution per unit by the amount of limiting factor needed to produce one unit

Question 5

What do you do after you have calculated contribution per limiting factor? (contribution statement- next section)

Answer 5

Rank products by limiting factor (highest to lowest)
Annual demand (units)
Hours available (limit)
Hours needed to meet full demand (total unitsxhours of limiting factor)
Hours allocated (One that can be fully completed first and then hours left over for final product)

Question 6

What do you do on the contribution statement when you have ranked the limiting factors?

Answer 6

Calculate production levels based on ranking and availability of limiting factor
Production according to rank (units)
Contribution (per unit)

Question 7

What do you do after you have calculated production levels based on ranking and availability of limiting factor? (contribution statement)

Answer 7

Calculate total contribution (and profit if possible minus fixed costs)
Contribution from each component (Production according to ranking x contribution per unit)
Total contribution

Question 8

What is the layout for the whole contribution statement?

Answer 8

Selling price (per unit)
Cost of material (per unit)
Labour hours cost (per unit)
Machine hours cost (per unit)
Total variable cost (per unit)

Contribution (per unit)
Number of labour or machine hours (per unit)
Contribution (per machine or labour hour)
Ranked order

Annual demand
Hours available
Hours needed to meet full demand
Hours allocated

Production according to ranking (units)
Contribution (per unit)
Contribution from each component
Total contribution
Profit