COST ACCOUNTING
COST BEHAVIORS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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net income will always be greater on traditional income statement
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net income will always be less on traditional statement
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net income will always be identical on both
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net income will be greater or less depending on sales volume
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Detailed explanation-1: -When comparing a traditional income statement to a CVP income statement: net income will always be identical on both. Contribution margin: A) is revenue remaining after deducting variable costs.
Detailed explanation-2: -While a traditional income statement works by separating product costs (those incurred in the process of manufacturing a product) from period costs (those incurred in the process of selling products, as opposed to making them), the contribution margin income statement separates variable costs from fixed costs.
Detailed explanation-3: -The CVP income statement is prepared for both internal and external use. The CVP income statement shows contribution margin instead of gross profit. In a traditional income statement, costs and expenses are classified as either variable or fixed.
Detailed explanation-4: -With a traditional income statement, a company’s net income is calculated using both production costs and the amount of units sold by the company. A company’s net income line is therefore affected by the amount of accounts it has of specific products during the period covered by a financial report.