Which of the following income statement formats is most commonly used with flexible budgeting?
A) Sales - manufacturing costs - selling and administrative costs = net income
B) Sales - cost of goods sold = gross margin - operating expenses = net income
C) Sales - variable costs = contribution margin - fixed costs = net income
D) None of these

Question

Quizplus · Accepted Answer

The C format, which is the contribution margin approach, is commonly used with flexible budgeting because it separates variable costs from fixed costs and focuses on the amount of revenue remaining after covering variable costs. This allows managers to evaluate the impact of changes in output levels on the company's profitability. Option A is a traditional format, while Option B is a single-step format.

Which of the Following Income Statement Formats Is Most Commonly