Understanding the Need for Variable Costing
Your friend, Manuel Rodriguez, has been working as a staff accountant for Williams Company, a small local manufacturing company. His job responsibilities to date have entailed several aspects of financial accounting: preparing monthly financial statements for the owners/investors and the bank with which Williams maintains a line of credit. Manuel has been offered a promotion to cost accountant. In that capacity, he would be responsible for overseeing Williams’ manufacturing facility and tracking all production costs. He would also be expected to generate a contribution margin income statement on a regular basis for company employees to use. Manuel has come to you for help in understanding the difference between this contribution margin statement and the ones he has prepared in the past.
Required:
Explain to Manuel the differences between these two income statement formats. Include in your explanation the basis for separating costs, targeted users, and information that can be obtained from each one.
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