10.7 Operating Earnings (EBIT): Standard Accounting (Reporting) versus Cost Accounting
The accountant and the cost accountant each have their own different ways of arriving at the same operating earnings figure – EBIT. Let’s see how each does his work.
| Reporting | Cost Accounting |
| Total Revenues | Total Revenues |
| (Cost of Goods Sold) | (Variable Costs) |
| Gross Profits | Contribution Margin |
| (Selling, General, and Administrative Costs) | (Fixed Costs) |
| EBIT | EBIT |
Neither presentation is “better” than the other necessarily; each simply serves a different function or end. The accounting report is intended to provide a summary of the financial results of the corporation for outside readers’ consumption. The cost accounting analysis is intended for internal assessment and corporate planning purposes alone.
Some use Δ Contribution Margin ÷ Δ EBIT to measure DOL. Same difference in terms of ranking one company to another, but not in the actual numbers.