Why do companies use the contribution margin income statement format?
A)To comply with generally accepted accounting principles (GAAP).
B)For external reporting purposes.
C)To present cost of goods sold to external users.
D)To predict how costs will behave with changes in activity.
E)None of the answer choices is correct.

Question

Quizplus · Accepted Answer

Companies use the contribution margin income statement format to predict how costs will behave with changes in activity. This format separates costs into fixed and variable components, allowing management to analyze how changes in sales volume or other measures of activity will impact profitability. It is a useful tool for decision-making and planning purposes.

Why Do Companies Use the Contribution Margin Income Statement Format