Requirement c$.$ What are the differences in classification of costs between the traditional$($functional$)$ income statement and the contribution margin income$$ statement?

A

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contribution margin

traditional

income statement must follow Generally Accepted Accounting Principles$($GAAP$)$ and categorizes costs as either

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Period costs

Product costs

are considered part of the cost of the inventory and are

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Period costs

Product costs

are any$$ selling, general, and administrative costs that a company$$ incurs, and are

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capitalized on the balance sheet immediately.

capitalized on the balance sheet when the inventory is sold.

expensed on the income statement as "cost of goods sold" when the inventory is sold.

expensed on the income statement immediately.

Part $4$

By$$ contrast, a

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income$$ statement, which does not need to adhere to$$ GAAP, classifies expenses as either

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big costs or little costs.

good costs or bad costs.

product costs or period costs.

variable costs or fixed costs.

Part $5$

Requirement d$.$ The allocated fixed administrative costs represent costs that must be covered but do not vary regardless of the product line. Such costs would include executive$$ salaries, corporate costs of$$ depreciation, utilities, accounting$$ services, legal$$ services, insurance, and property taxes. Why would it be important to distinguish between the direct fixed selling and administrative costs and the allocated administrative$$ costs?

It is important to distinguish between allocated fixed expenses and direct fixed expenses in order to

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identify whether certain costs can be controlled or eliminated to achieve the desired profit.

properly calculate total fixed costs.

properly calculate total costs.

properly calculate total operating profit.

Part $6$

Requirement e$.$ Consider the$$ cost$-$benefit analysis. If you were the$$ manager, what information would you seek in deciding whether it was necessary to refine the analysis further by breaking down the clothing into boots versus$$ coats?

Examples might$$ include:

A$.$

What percentage does clothing contribute to total sales of$$ umbrellas?

B$.$

How easy is it to separate the fixed and variable costs for clothing between boots and$$ coats?

C$.$

Both A and B$.$

D$.$

Neither A nor B$.$

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