ADM2341 Chapter 6 Cost Behaviour

Contribution margin covers fixed costs and provides

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Unformatted text preview: d The contribution income statement format is used as an internal planning and decision making tool. as an internal planning and decision making tool. We will use this approach for: We will use this approach for: 1. Cost-volume-profit analysis (Chapter 7). 1. Cost-volume-profit analysis (Chapter 7). 2. Budgeting (Chapter 9). 2. Budgeting (Chapter 9). 3. Segmented reporting of profit data (Chapter 11). 3. Segmented reporting of profit data (Chapter 11). 4. Special decisions such as pricing and make-or4. Special decisions such as pricing and make-orbuy analysis (Chapter 12). buy analysis (Chapter 12). LO 3 6-48 The Contribution Format Comparison of the Contribution Income Statement w ith the Traditional Income Statement Traditional Approach (costs organized by function) Contribution Approach (costs organized by behavior) Sales $ 100,000 Less cost of goods sold 70,000 Gross margin $ 30,000 Less operating expenses 20,000 Net operating income $ 10,000 Sales $ 100,000 Less variable expenses 60,000 Contribution margin $ 40,000 Less fixed expenses 30,000 Net operating income $ 10,000 Used primarily for Used external reporting. Used primarily by management. LO 3...
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