Based on the contribution format income statement, which of the following best describes the main difference between a single-step income statement and a contribution format income statement?

• A. A single-step income statement separates operating and non-operating items, while a contribution format income statement does not.
• B. A single-step income statement calculates gross profit, while a contribution format income statement does not.
• C. A single-step income statement groups all revenues together and all expenses together, while a contribution format income statement separates variable and fixed costs.
• D. A single-step income statement is only used for internal reporting, while a contribution format income statement is used for external reporting.

Answer: (C)

Verified step by step guidance

1. Understand the purpose of a single-step income statement: It groups all revenues together and all expenses together without distinguishing between operating and non-operating items or variable and fixed costs.
2. Understand the purpose of a contribution format income statement: It separates costs into variable and fixed categories, which is useful for internal decision-making and analyzing the impact of changes in sales volume on profitability.
3. Compare the two formats: A single-step income statement is simpler and focuses on total revenues and total expenses, while a contribution format income statement provides more detailed insights into cost behavior and contribution margin.
4. Recognize the key difference: The single-step income statement does not separate costs based on their behavior (variable vs. fixed), whereas the contribution format income statement does.
5. Conclude that the correct answer is: A single-step income statement groups all revenues together and all expenses together, while a contribution format income statement separates variable and fixed costs.