The full-cost approach to income statement analysis is more popular than the contribution approach because firms feel that it is more objective.

Question

Quizplus · Accepted Answer

The full-cost approach includes both fixed and variable costs in the cost of goods sold and other expenses sections of the income statement, whereas the contribution approach only includes variable costs in the cost of goods sold section and separates fixed costs in a separate section. The full-cost approach can be more subjective as it includes allocations of fixed costs, which can vary depending on the method used. The contribution approach is seen as more useful for decision-making as it focuses on the contribution margin, which represents the amount of revenue left over after variable costs are accounted for.

The Full-Cost Approach to Income Statement Analysis Is More Popular