A contribution margin income statement emphasizes the distinction between variable and fixed costs.

The contribution margin is calculated by subtracting fixed costs from sales revenue.

The contribution margin income statement is primarily used for external reporting to investors and creditors.

Fixed costs remain constant in total regardless of changes in sales volume within the relevant range.

In a contribution margin income statement, cost of goods sold is normally treated as a variable cost.

The contribution margin ratio is calculated by dividing the contribution margin by net income.

Variable costs per unit remain constant regardless of changes in sales volume.

The contribution margin income statement is also known as the classified income statement.

A higher contribution margin ratio indicates that a company has a greater ability to cover its fixed costs and generate profit.

The contribution margin is the amount of revenue available to cover fixed costs and generate profit.

Selling, general, and administrative expenses are always considered variable costs in a contribution margin income statement.

A company with a high proportion of fixed costs is more sensitive to changes in sales volume.

The contribution margin is the same as gross profit.

Contribution Margin Ratio = Contribution Margin (Total Sales – Total Variable Expenses) / Total Sales

Contribution Margin is the difference between sales revenue and fixed costs.

Operating Profit equals the contribution margin minus fixed cost

The contribution margin income statement is used to analyze how changes in sales volume and variable costs impact profitability.

The contribution margin income statement assists in setting prices that ensure profitability.

The contribution income statement is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume