Income Statement Using Variable Costing

Be used in the computation of operating income but not in the computation of the contribution margin.

Income statement using variable costing. Some choose to utilize the absorption costing income statement while others choose the variable costing income statement. Uses contribution margin income statement showing sales variable expenses contribution margin fixed expenses net income and is based on the number of units sold. Manufacturing companies have choices in the way they determine and report their profits. Both income statements offer their own set of advantages and disadvantages.

It is useful to create an inc. It is useful to determine the proportion of expenses that actually varies directly with revenues. Variable costing is a concept used in managerial and cost accounting in which the fixed manufacturing overhead is excluded from the product cost of production. Can be applied to all costs and not just product costs.

In accounting frameworks such as gaap and ifrs. A variable costing income statement is one in which all variable expenses are deducted from revenue to arrive at a separately stated contribution margin from which all fixed expenses are then subtracted to arrive at the net profit or loss for the period. However the absorption costing method conforms with the generally accepted accounting principles and it offers a more accurate way of tracking profits in a specific accounting period. Answer b is correct under the variable costing method the contribution margin equals sales minus variable expenses.

The method is in contrast with absorption costing in which the fixed manufacturing overhead is allocated to products produced. Fixed selling and administrative costs and.