Q20-11RQ - Horngren'S Financial And Managerial Accounting

Question

How does a contribution margin income statement differ from a traditional income statement?

 

Step-by-Step Solution

Answer

Answer

 

Contribution margin income statement differs from traditional income statement because it considers only variable cost to determine gross profit.

 

Step 1: Contribution margin income statement

Contribution margin income statement is a modern income statement which considers fixed cost as an irrelevant cost for decision making.

Step 2: Difference between contribution margin income statement and traditional income statement

Traditional Income Statement	Contribution Margin Income Statement
Net Sales Revenue	Net Sales Revenue
Less: Cost of goods sold [Product costs(variable and fixed production cost)]	Less: Variable costs ( Variable costs)
Gross Profit	Contribution margin
Less: Selling and administrative expenses[variable and fixed)]	Less: Fixed costs ( all fixed cost)
Operating Income	Operating income