Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 47

For the following questions, circle the best response. Answers are at the end of this chapter.

The contribution margin income statement

a. reports expenses based on cost behavior pattern rather than cost function.

b. unitizes fixed costs.

c. shows contribution margin rather than operating income as the bottom line.

d. is sometimes used for financial reporting purposes.

e. none of the above.

Step 1 of 2

The contribution margin income statement is an income statement which is used by managers for their internal purposes. This income statement is used by the managers for their decision making needs. The contribution margin income statement is prepared by classifying the costs according to their cost behavior pattern that is variable and fixed. This income statement is prepared by classifying the costs into variable costs and fixed costs.

Contribution margin income statement is prepared to know the contribution margin and the operating income from the sale of products or providing services. The format of contribution margin income statement is as follows:

Contribution margin income statement

Revenue	XXX
Less: Variable costs	XXX
Contribution margin	XXX
Less: Fixed costs	XXX
Operating income	XXX

As already mentioned above, the costs are classified as variable costs and fixed costs based on their cost behavior pattern.

Therefore, Option a is the correct answer.