In this video, we’re going to compare the traditional income statement to the contribution margin income statement. In the traditional format, costs are organized by function. This functional classification of costs is helpful for external parties.
However, the traditional income statement has a glaring weakness: It doesn’t allow managers to perform cost-volume-profit analysis. To perform CVP analysis you need to know which costs are fixed and which ones are variable.
The contribution margin income statement organizes costs based on their behavior. It separates selling costs into their variable and fixed components.
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