Which of the following is true of the traditional format of the income statement?
A) It is prepared under the variable costing method.
B) It shows contribution margin as a line item.
C) It is not allowed under GAAP.
D) It is prepared under the absorption method.

Question

Quizplus · Accepted Answer

The traditional format of the income statement is prepared under the absorption method, which allocates all manufacturing costs to the product. The variable costing method does not allocate fixed manufacturing costs to the product, so option A is incorrect. While contribution margin is an important concept in managerial accounting, it is not shown as a line item in the traditional format of the income statement, making option B incorrect. The traditional format of the income statement is allowed under GAAP and is commonly used by companies, making option C incorrect.

Which of the Following Is True of the Traditional Format