At a recent staff meeting, Michael Brown, the marketing manager, raised concerns about preparing both the traditional format income statement and the contribution format income statement. He argued that to avoid wasting resources, the company should prepare either the traditional or the contribution format income statement. He also suggested that rather than wasting time in classifying costs in different ways, the company should stick to a single cost classification. In this regard, Amit Agarwal, the CEO, has asked you to prepare a report for the next staff meeting. Your report should cover the following issues:

i) Explain the importance of preparing both traditional and contribution format income statements.

ii) Describe how costs need to be classified while preparing a traditional format income statement and a contribution format income statement.