Answered: Explain income statement under…

Business

Accounting

Explain income statement under contribution margin format.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 2Q: Define and explain contribution margin ratio.

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Question

Explain income statement under contribution margin format.

Expert Solution

Step 1

Contribution margin: It refers to the difference between the selling price per unit of a product and the variable cost incurred in making per unit of the same product. It usually represents that portion of the sales revenue per unit that is not consumed by the variable expenses and it can be used towards the coverage of fixed expenses.

Step 2

Income statement: It refers to a financial statement of the corporation that is used for showing the total revenues and expenses incurred by the corporation during a particular period. It shows the transformation of the corporation’s revenue into the net profits.

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