Which of the following best describes what a contribution margin income statement shows?

• A. Revenues, expenses, and net income without distinguishing between variable and fixed costs.
• B. A detailed breakdown of non-operating revenues and expenses.
• C. The separation of variable and fixed costs, highlighting contribution margin before deducting fixed costs.
• D. Only the gross profit and operating income for the period.

Answer: (C)

Verified step by step guidance

1. Understand the concept of a contribution margin income statement: It is a financial statement that separates costs into variable and fixed categories, allowing businesses to analyze how revenues contribute to covering fixed costs and generating profit.
2. Recognize the structure of the contribution margin income statement: It starts with revenues, subtracts variable costs to calculate the contribution margin, and then deducts fixed costs to arrive at net income.
3. Identify the purpose of the contribution margin: The contribution margin highlights the amount of revenue available to cover fixed costs and contribute to profit after variable costs are deducted.
4. Compare the contribution margin income statement to other types of income statements: Unlike traditional income statements, it emphasizes the distinction between variable and fixed costs rather than grouping all expenses together.
5. Conclude that the correct description of a contribution margin income statement is: 'The separation of variable and fixed costs, highlighting contribution margin before deducting fixed costs.'