Question

Which of the following statements concerning contribution margin income statements is true?

a) Variable costs are excluded from the calculation.
b) Fixed costs are deducted from gross profit.
c) It is primarily used for internal reporting.
d) It focuses on net income.

Answer 1

Variable costs are excluded from the calculation in a contribution margin income statement, which is primarily used for internal reporting purposes.

Step-by-step explanation:

The statement that is true concerning contribution margin income statements is that variable costs are excluded from the calculation. Contribution margin income statements separate costs into two categories: variable costs and fixed costs. Variable costs are excluded from the calculation because they are directly related to the production of goods or services, while fixed costs, such as rent and salaries, are deducted from gross profit.

Contribution margin income statements are primarily used for internal reporting purposes within a company. They help assess the profitability of specific products or services and make informed decisions regarding pricing, production levels, and resource allocation.