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    How do companies use the Contribution Approach to Estimate the Effects of Changes in Variable Costs? Explain.

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    Companies use the contribution margin income statement because it sorts expenses by cost behavior. Those that vary with activity, variable costs, are grouped together and then a subtotal is created called the contribution margin. Those expenses that do not change with activity, fixed costs, are then presented after the contribution margin. The reason this is useful is that companies can then "see" how the profits will change with an increment of activity. This helps ...

    Solution Summary

    Your response is 222 words and indicates what a contribution margin approach is, why it is used, provides an example and makes a decision using the contribution margin to illustrate. Response is suitable for novices.