Post a summary addressing the following questions: 1) Why is a contribution margin income statement more...

Post a summary addressing the following questions: 1) Why is a contribution margin income statement more useful to managerial decision makers than the income statement intended for external users? 2) What is the critical item that is treated differently in full absorption versus variable costing? Explain how each method treats it.

Expert Solution

1) The Income statement is prepared using all expenses like financial expenses, investment expenses etc. which are not useful for managerial decision. Some expenses & income are one time in nature like profit on sale of fixed assets / loss on sale of investment. These are not regular business income / business expenses.

The In contribution margin income statement, only production & sales related data is used which are directly attributable to the product, to detemined profit. So management may decide whether to increase production / cut product line.

2) The Fixed production cost is critical item that is treated differently in full absorption versus variable costing.

In variable costing, valuation of ending inventory is the based on variable production costs i.e. direct labour, direct material, & variable production overhead.

In absorption costing, valuation of ending inventory is the based on the total production costs i.e. direct labour direct material, & variable & fixed production overhead.

ekkarill92 answered 2 years ago

1. a) The contribution income statement specifically identifies the contribution margin within the income statement. How...

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

how is a contribution margin income statement different from a regular (GAAP) income statement?

Discuss contribution margin, what it is and how it is presented in the CVP income statement

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