Question

Which of the following will appear as a line item in the income statement prepared under variable​ costing? A. Total Cost of Goods Sold B. ​Work-in-Process Inventory C. Contribution Margin D. Gross Profit

Answer 1

Answer:

C. Contribution Margin

Explanation:

Variable costing is used to determine how changes in volume affect costs and profits in a business. It is similar to the cost-volume-profits analysis. Variable costing assumes constant prices for key items throughout the period in review.

In variable costing, selling price, variable, and fixed costs are assumed to be constant. It uses the contribution margin to determine the breakeven point and profitability. The contribution margin is obtained by subtracting variable costs from selling price. Dividing fixed costs by contribution margin per unit gives the breakeven point.