Which of the following formats is typically used in year-to-date income statements prepared for internal use...
Which of the following formats is typically used in year-to-date income statements prepared for internal use under a responsibility accounting system?
Multiple Choice
Sales – Cost of Goods Sold = Gross Margin; Gross Margin – Operating Expenses = Net Income
Sales – Manufacturing Costs = Manufacturing Margin; Manufacturing Margin – Selling and Administrative Costs = Net Income
Sales – Variable Costs = Contribution Margin; Contribution Margin – Fixed Costs = Net Income
None of these.
Homework Answers
Answer
C) Sales – Variable Costs = Contribution Margin; Contribution Margin – Fixed Costs = Net Income
Note:
In responsibility accounting system, we gather information to evaluate how the departmental managers are performing and how the costs can eb controlled and profits can be increased. In such accounting, it is very important to differentiate fixed costs and variable costs since fixed costs do not change with production and variable costs do change. Hence, we use income statement in following format-
| Sales |
| Less: Variable cost |
| Contribution |
| Less: Fixed Costs |
| Net Income |
In case of any doubt, please comment.
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