Absorption costing is to gross margin as variable costing is to:
A)gross profit
B)territory margin
C)net income
D)contribution margin

Question

Quizplus · Accepted Answer

Absorption costing and variable costing are two methods used to determine the cost of goods sold and net income of a company. Absorption costing allocates both fixed and variable manufacturing costs to each unit of output, while variable costing only allocates variable manufacturing costs to each unit of output. As a result, variable costing is better suited for calculating contribution margin, which represents the amount of revenue left over after variable costs have been deducted. Therefore, the correct answer is D) contribution margin.

Absorption Costing Is to Gross Margin as Variable Costing Is