Question

What is required by managers if they use the contribution format approach for internal reporting?

A) Allocation of indirect costs
B) Identification of fixed and variable costs
C) Preparation of financial statements
D) Calculation of breakeven point

Answer 1

Managers using the contribution format approach for internal reporting need to identify fixed and variable costs and calculate the breakeven point.

Step-by-step explanation:

If managers are using the contribution format approach for internal reporting, there are certain requirements they need to fulfill. One of the main requirements is the identification of fixed and variable costs (Option B). This is crucial because the contribution format separates costs into these two categories, allowing managers to make informed decisions about pricing, product mix, and profitability.

Another requirement is the calculation of the breakeven point (Option D). The breakeven point is the level of sales at which total revenues equal total costs, and it helps managers determine the minimum amount of sales necessary to cover all expenses.

While preparing financial statements (Option C) is important for external reporting purposes, it is not specifically required by managers when using the contribution format approach for internal reporting. Similarly, the allocation of indirect costs (Option A) is not a direct requirement of the contribution format.