Saturday, March 2, 2019
Generally Accepted Accounting Principles Essay
A. What is the divergence between a contribution income assertion and a traditional income statement? constituent income statement is an income statement that classifies apostrophize by behavior ( rigid cost and changeable cost). Traditional income statement is sometimes called the functional income statement. It is an income statement prep bed in the multiple- amount or single step income statement format which conforms to Generally trustworthy Accounting Principles (GAAP) and can be pulmonary tuberculosisd for external financial reporting. The main difference between the 2 is that the contribution income statement list protean cost first, followed by fixed costs. Keeping in mind that GAAP and does not permit businesses to use the contribution income statement for financial accounting it is used only for intrinsic decision making purposes.B. What is the difference between tightness costing and variable costing?Absorption costing is a costing method where reaping cost inc ludes all the costs to wear products and get them ready to swap regardless of whether the costs ar variable or fixed. Generally Accepted Accounting Principles requires business to use absorption costing for financial accounting. inconstant costing is a method of costing where only the costs to acquire products or to get them ready to sell that vary with output are treated as product costs. In other words, only variable product costs are treated as product costs. For manufactures, the difference between absorption costing and variable costing is significant.For example, when computed tomography uses absorption costing to determine the cost of manufacturing, its product cost includes the subscribe to material, direct labor, variable manufacturing overhead, and fixed manufacturing overhead cost incurred to make the bulldozer. These costs are added to inventory and they are not expensed as cost of goods sold until the bulldozer is sol. However, when Caterpillar uses variable cost ing, product cost, includes only direct material, direct labor, and variable manufacturing overhead costs. on a lower floor variable costing all of Caterpillars fixed manufacturing overhead cost is treated as period cost. When Caterpillar uses variable costs are added to inventory (direct material, direct labor, and variable manufacturing overhead). Under variable costing, Caterpillar expenses fixed manufacturing overhead as it is incurred just alike(p) it does other period cost such as selling and administrative expense.F. What is the contribution margin ratio and how does it differ from the contribution margin? region margin is the amount remaining after all variable costs have been deducted from sales revenue. It is an important piece of information for managers, because it tells them how much of their partys original sales dollars remain after deducting variable cost. Contribution margin ratio is the contribution margin expressed as a percentage of sales. Contribution margin ratio can be work by dividing the total contribution margin by total sales or by dividing the per whole contribution margin by per unit selling prices.