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 separates costs into fixed and variable categories, allowing managers to assess the impact of sales volume on operating income. This is based on the concept of cost behavior, where costs are classified according to how they change as activity levels change. Therefore, option B is the correct choice. Option A is incorrect because a cost function is a mathematical representation of how the cost behaves, and although it is related to cost behavior, it is not the same thing. Option C is partially correct, but only option B provides a complete answer. Option D is incorrect because a contribution margin income statement does use cost behavior to analyze the relationship between sales volumes and operating income.

A Contribution Margin Format Income Statement