Question

Why is “net operating income” on the functional format income statement the same as “net operating income” on the contribution format income statement.

                                                          

Gross Margin	8,603,560	46.76%	10,530,320	49.30%	11,772,882	48.27%	30,762,309	100.00%
less: Marketing Expenses (Sch 7)	5,358,000	29.12%	6,194,000	29.00%	7,010,000	28.74%	8,781,000	28.54%
less: G & A Expense (Sch 8)	1,845,000	10.03%	2,004,000	9.38%	2,202,000	9.03%	0	0.00%
Net Operating Income	1,400,560	7.61%	2,332,320	10.92%	2,560,882	10.50%	21,981,309	71.46%

Contribution Margin	9,106,560	49.57%	10,686,320	50.10%	11,345,882	46.57%
less: Fixed Expenses
Fixed Production	2,103,000		2,246,000		2,523,000	10.36%
Fixed Marketing	3,758,000		4,104,000		4,060,000	16.67%
Fixed Administrative	1,845,000		2,004,000		2,202,000	9.04%
Total Fixed Expenses	7,706,000	41.95%	8,354,000	39.16%	8,785,000	36.06%
Net Operating Income	$1,400,560	7.62%	$2,332,320	10.93%	$2,560,882	10.51%

Answer 1

Net operating income formula is = sales- cost of goods sold- operating expenses- selling and administrative expenses

Only presentation of information is different under variable costing income statement and functional form of income statement. Information is presented in variable form of income statement:

sales- variable cost of goods sold - fixed production expenses- fixed selling and administrative expenses

Information in Functional form of income statement would be presented as:

sales- cost of goods sold - operating expenses - selling and administrative expenses