On an income statement prepared by the traditional approach, costs are organised and presented according to function.

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The contribution format is an alternative approach to preparing income statements, where costs are organised and presented according to their behavior rather than function. The contribution format separates costs into fixed and variable categories and calculates the contribution margin, which is the difference between total sales revenue and total variable costs. This contribution margin is then used to cover fixed costs and to determine the profit or loss of the business.

On an Income Statement Prepared by the Traditional Approach, Costs