Posted: May 4th, 2016

What is possesion utility?

The company’s CEO just returned from a seminar on management accounting and some new tools that can be used to assist in management of the business. One of the new tools she learned about is referred to as contribution format income statements.

It is time for the accounting department to prepare the month-end income statement. In the past, the standard format income statement, as shown below, has been used. But for the first time, the CEO has asked that the contribution format be used instead.

While most of the different expense categories are easy to analyze, the utility expense seems to display characteristics of both variable costs and fixed costs. To help prepare this income statement format, the accounting department collected data from the past 12 months. This data included actual utility costs as compared to each month’s business volume. Some of it is shown below.

History of Utility Expenses
Utility Costs Comment
January $10,000 closed the entire month for repairs
February $11,000 produced 5,000 widgets
March $10,600 produced 3,000 widgets
April $11,600 produced 8,000 widgets