Why Do Companies Use the Contribution Margin Income Statement Format

question 31

Multiple Choice

Why do companies use the contribution margin income statement format?

• A)To comply with generally accepted accounting principles (GAAP).
• B)For external reporting purposes.
• C)To present cost of goods sold to external users.
• D)To predict how costs will behave with changes in activity.
• E)None of the answer choices is correct.

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Definitions:

Customer Loyalty

The likelihood of repeated business from a customer demonstrated by their repeat purchases or preference for a business's product or service over competitors.

Sustainable Operating Profits

Profits from core business operations that are expected to continue or be maintained without significant new investment or changes in the business environment.

Nonrecurring Items

Financial events that are not expected to happen regularly in a company's business cycle, affecting the company's usual revenue or expenses.