Question

Which of the following is not true about the contribution margin format income statement

A) the costing method used is referred to as variable costing

B) contribution margin equals total sales less total variable costs

C) total fixed costs include some selling and admin costs

D) net income equals contribution margin less total fixed costs

E) variable costs do not include sales commissions

Answer 1

Contribution margin is calculated after deducting variable cost from the selling price. Before contribution margin equals total sales less total variable cost.

Also the total fixed cost under contribution margin income statement includes the total fixed cost incurred by the company which involves selling and administrative fixed cost also.

Moreover the net income arrived will be e contribution margin reduced by total fixed cost. However as in the case of 6 cause all the fixed costs are included same is with the variable cost that all the variable cost including sales commission is to be included in the variable cost.

Therefore the statement variable cost do not include sales commission is not true about the contribution margin format income statement .

So the correct option is E.