Last year Gilroy Manufacturing sold its product for \($500\) per unit. Production costs totaled \($80,000\) (25% fixed, 75% variable). Selling and administrative costs totaled \($300,000\) (10% fixed, 90% variable). Gilroy Manufacturing produced and sold 1,000 units last year.

Required

a. Prepare a traditional income statement for Gilroy Manufacturing.

b. Prepare a contribution margin income statement for Gilroy Manufacturing.

c. Why do companies use the contribution margin income statement format?