Business Analysis with Microsoft® Excel, Second Edition

Organizing with Traditional Versus Contribution Approaches

The traditional approach organizes income statements around the functions a business performs, such as production, administration, and sales. This functional method of cost classification does not allow for the examination of cost behavior. Traditional income statements are not set up to describe the cost drivers of the business.

There are no subcategories to analyze, or to use in the management of the behavior of costs within each classification. All costs are grouped without respect to whether they are fixed, variable, inherent or some other characteristic of cost behavior. When an income statement lumps everything together in this fashion, it is difficult to analyze, to make decisions, ...