The Cornerstone Corporation produces and sells a single product. The following data refers to the year just completed:

List of Account Titles
Beginning inventory		0
Units produced		9,000
Units sold		7,000
Selling price per unit	$	47
Selling and administrative expenses:
Variable Cost per unit	$	4
Fixed Cost per year	$	58,000
Manufacturing costs:
Direct materials cost per unit	$	10
Direct labor cost per unit	$	6
Variable manufacturing overhead cost per unit	$	5
Fixed manufacturing overhead per year	$	90,000

a. If the managers use the variable costing approach to prepare an income statement, what is the dollar amount for the contribution margin account that would be reported on this type of income statement? Show all detailed supporting calculations that were used to determine the final answer.

b. If the managers use the absorption (traditional financial) costing approach to prepare an income statement, what is the dollar amount for the gross margin account that would be reported on this type of income statement? Show all detailed supporting calculations that were used to determine the final answer.

c. Provide a concept definition for the terms contribution margin and gross margin, and then explain why managers might prefer to use the contribution margin analysis approach to enable more effective decision making, rather than focusing on a gross margin that is part of the absorption costing approach.