Question

Question 1: How does a contribution margin income statement differ from the income statement used in financial reporting?

Answer 1

Answer

The contribution margin income statement is as follows:

Net sales	$   -
Less : Variable costs
Direct material	$   -
Direct labor	$   -
Direct expenses	$   -
Contribution margin	$   -
Less: Fixed costs	$   -
Profit margin	$   -

The traditional income statement is as follows:

Income Statement
Revenue
Service revenue
Total revenue	$   -
Expenses
Advertising
Dividends
Depreciation
Insurance
Rent
Salaries
Supplies
Total expenses	$   -
Net Income	$   -

Note:

In contribution margin income statement, the costs are segregated into fixed and variable costs. The statement used in financial reporting does not divide the costs into fixed and variable costs.

Companies use contribution margin income statement for internal purposes (management accounting). Companies use statements used in financial reporting for external reporting.