The margin contribution income statement is a great tool in decision making for

Question

The margin contribution income statement is a great tool in decision making for any kind of business. By using this statement, a managerial accountant can support decision that would drop or add a product or segment in manufacturing. By separating the cost behavior, the manager now has the tools to make a decision that will impact the operating income. Should the company take on an additional special order for a client? The contribution margin income statement come help figure out those numbers. Said company, wants to outsource (or considering it), the contribution income statement can be useful in the management process. All the decision made in this chapter are based on the contribution margin. What’s also helpful is knowing whether the company is a price taker or price setter. This will help the company make decisions even better. Revenue difference is the basis for this discussion.

I just need a 50-80 word response for this.

Explanation / Answer

For any Company to take decision for special order or for outsource it needs to see its contribution.

Contribution is always Sales less variable cost (relevant cost for making the product like raw material, labour, direct manufacturing cost etc).

Fixed cost is not considered for taking deicision as it remains unchanged for any additional unit or order till it is specifically said that fixed cost will be some 'X" amount.

Hence if there is any contribution that will increase the revenue it can take the order.

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