Question

The contribution income statement would require a firm to ___________.

A. Separate costs into fixed and variable categories.
B. Restructure its accounting system to accommodate activity-based costing.
C. Separate revenue into different categories.
D. Ignore some estimated fixed expenses, such as depreciation, that don't involve a cash outlay.
E. Round off amounts to the nearest dollar.

Answer 1

Answer: A. Separate costs into fixed and variable categories.

Explanation: The contribution income statement separates variable and fixed costs in an effect to show the amount of revenues left over after variable costs are paid, that is, it lists variable costs (costs that do not remain consistent) and fixed costs (costs that are constant whatever the amount of goods produced) in order to calculate the contribution margin of the company. It is also known as the contribution margin income statement. As opposed to the traditional income statement which separates product costs from period costs, it separates variable costs from fixed costs and is applied to determining net profit or loss for the period.