Question

Which of the following statements about contribution income statement is NOT correct? 1. It is used...

Which of the following statements about contribution income statement is NOT correct?

1. It is used as an internal planning and decision-making tool

2. It facilitates cost volume profit analysis

3. It separates costs into fixed and variable components, first deducting variable expenses from sale to obtain contribution margin

4. It emphasizes the function of production, administration and sales with no distinction between fixed costs and variable costs

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Homework Answers

Answer #1

Contribution income statement is a statement which separates the fixed and variable component where by the variable expenses are deducted from sales to obtain contribution margin..

Also this statement is used as an internal planning and decision-making tool in order to to assess what is the margin the product is giving. moreover it also facilitates in cost volume profit analysis as it distinguish between variable cost and fixed cost.

However it do not emphasizes on production and adminstration and also it distinguish between the fixed cost as well as variable cost. Therefore this option is not correct about contribution income statement.

Therefore the correct option is 4th.

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