Monday, July 7, 2008

CVP Relationships Income Statement

CVP Relationships and the Income Statement

The traditional income statement for a manufacturer includes a cost-of-goods-sold amount that combines variable costs and fixed manufacturing overhead in the statement. Cost are not grouped by behavior but by function. CVP Analysis is harder to perform when costs are not grouped by behavior

The contribution income statement is presented in a format that highlights cost behavior on the income statement. Variable Costs are subtracted from sales to highlight total contribution margin. Fixed expenses are subtracted to calculate the period’s net income. This format is used for variable costing.


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