Question

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Answer 1

Answer: Contribution margin method

In contribution margin approach, the fixed expenses are expensed in the period in which they are incurred. It is given that current period sales consist of a lot of previous years' inventory. The fixed manufacturing OH allocated to previous period inventory is expensed in the previous year itself under contribution margin approach whereas in traditional approach it is expensed in the period in which inventory is sold. Therfore contribution margin approach will show a higher income