Sort the following contribution margin income statement line items in the correct order from top down. V Operating income Sales revenue ✓ Variable costs ✓ Contribution margin Fixed costs
Sort the following contribution margin income statement line items in the correct order from top down. V Operating income Sales revenue ✓ Variable costs ✓ Contribution margin Fixed costs
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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please help me number it from 1-5
Transcribed Image Text:**Sorting Contribution Margin Income Statement Components**
**Objective:**
Organize the elements of a contribution margin income statement in the correct hierarchical order, from top to bottom.
**Items to Sort:**
1. Sales Revenue
2. Variable Costs
3. Contribution Margin
4. Fixed Costs
5. Operating Income
When aligning these components in the accurate sequence for a contribution margin income statement, they should be ordered as follows:
1. **Sales Revenue**: Represents the total revenue generated from the sale of goods or services before any expenses are deducted.
2. **Variable Costs**: Costs that vary directly with the level of production or sales volume (e.g., raw materials, direct labor).
3. **Contribution Margin**: Calculated by subtracting variable costs from sales revenue. It indicates the portion of sales revenue that contributes to covering fixed costs and generating profit.
4. **Fixed Costs**: Costs that remain constant regardless of the level of production or sales volume (e.g., rent, salaries).
5. **Operating Income**: The profit earned from normal business operations after all variable and fixed costs have been deducted from sales revenue.
**Visual Explanation:**
The image provides a dropdown list with the following items to arrange:
- Operating Income
- Sales Revenue
- Variable Costs
- Contribution Margin
- Fixed Costs
To ensure clarity and comprehension, it is essential to arrange these financial terms from the initial revenue generation step down to the final profit calculation:
1. **Sales Revenue** (initial step, top)
2. **Variable Costs** (subtracted from sales revenue to calculate contribution margin)
3. **Contribution Margin** (sales revenue minus variable costs)
4. **Fixed Costs** (subtracted from contribution margin to determine operating income)
5. **Operating Income** (final profit measure, bottom)
Understanding and organizing these components ensures accurate financial analysis and reporting within a business context.
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