Question: Contribution Margin Income Statement. Last month Palermo Company sold its product for $60 per unit. Fixed production costs were $40,000, and variable production costs amounted

Contribution Margin Income Statement. Last month Palermo Company sold its product for $60 per unit. Fixed production costs were $40,000, and variable production costs amounted to $15 per unit. Fixed selling and administrative costs totaled $26,000, and variable selling and administrative costs amounted to $5 per unit. Palermo produced and sold 7,000 units last month.

Required:

a. Prepare a traditional income statement for Palermo Company.

b. Prepare a contribution margin income statement for Palermo Company.

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

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