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

Short Answer

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Answer

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

Step by step solution

01

Contribution margin income statement

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

02

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

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