The contribution income statement differs from the traditional income statement in which of the following ways?
A) The traditional income statement separates costs into fixed and variable components.
B) The traditional income statement subtracts all variable costs from sales to obtain the contribution margin.
C) Cost-volume-profit relationships can be analyzed more easily from the contribution income statement.
D) The effect of sales volume changes on profit is readily apparent on the traditional income statement.
E) The contribution income statement separates costs into product and period categories.

Question

Quizplus · Accepted Answer

The contribution income statement is designed to make cost-volume-profit relationships more easily analyzed by separating costs into fixed and variable components, unlike the traditional income statement which typically organizes costs by function (e.g., cost of goods sold, selling, and administrative expenses). This separation allows for a clearer understanding of how changes in sales volume affect profit.

The Contribution Income Statement Differs from the Traditional Income Statement