Contribution margin statements:
A) Can be utilized to evaluate the effect of possible activity changes on profit before taxes.
B) Cannot be utilized to evaluate the effect of possible activity changes if those changes also change fixed costs.
C) Will not provide an alert if cost behaviors vary from those expected.
D) Identify variable and fixed costs but will not address changes in revenues.

Question

Quizplus · Accepted Answer

Contribution margin statements can be used to evaluate the effect of possible activity changes on profit before taxes. They help in understanding the relationship between sales, variable costs, and contribution margin. The contribution margin is then used to cover fixed costs and provide profits. Therefore, by analyzing the contribution margin statement, one can determine the impact of changes in sales or variable costs on the overall profitability of the business.

Contribution Margin Statements