A contribution margin format income statement
A)Is based on cost function rather than on cost behavior.
B)Allows managers to assess the impact of sales volume on operating income.
C)Both is based on cost function rather than on cost behavior and allows managers to assess the impact of sales volume on operating income.
D)Neither is based on cost function rather than on cost behavior nor allows managers to assess the impact of sales volume on operating income.

Question

Quizplus · Accepted Answer

A contribution margin format income statement is based on cost behavior, and it separates costs into fixed and variable categories. This allows managers to calculate the contribution margin, which is the amount of revenue that exceeds variable costs and contributes to covering fixed costs and generating a profit. By analyzing the contribution margin in relation to changes in sales volume, managers can make informed decisions about pricing strategies, cost controls, and production levels to maximize operating income.

A Contribution Margin Format Income Statement