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Which subtotal replaces gross profit on a variable costing statement of profit or loss?
AOperating income
BTotal fixed costs
CManufacturing margin
DContribution margin
Answer & Solution
Correct answer: C. Manufacturing margin
1. Absorption costing shows sales minus cost of goods sold as gross profit.
2. Variable costing deducts only the variable cost of goods sold, giving manufacturing margin.
3. Variable selling and administrative expenses are then deducted to reach contribution margin.
4. Contribution margin sits one line lower, after all variable costs rather than only production ones.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.1 Introduction_
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