Question

Essential for segmented income statements:

_____ format MUST be used to separate ___ and ____ costs and to set up the calculation of a ____ ____.
_____ ____ ___ must be separated from ____ ___ ____ to enable the calculation of a ___ ____.

Answer 1

The student's question concerns the preparation of a segmented income statement using the contribution format to separate variable and fixed costs for determining segment margin. Traceable fixed costs are also differentiated from common fixed costs to calculate net income.

Step-by-step explanation:

The student's question refers to the preparation of a segmented income statement which is a type of financial statement analysts use to evaluate the performance of different segments of a business. In providing an answer: The contribution format MUST be used to separate variable and fixed costs and to set up the calculation of a segment margin.

Traceable fixed costs must be separated from common fixed costs to enable the calculation of a net income. The contribution format is crucial as it allows businesses to see the direct profit contributions of individual segments by deducting traceable fixed and variable costs attributed to them. This information is fundamental in making decisions such as pricing, product development, and strategies for market competition.