Generally Accepted Accounting Principles Essay

A. What is the difference between a theatrical role income report and a traditional income debate?Contribution income statement is an income statement that classifies cost by behavior (fixed cost and uncertain quantity cost). Traditional income statement is sometimes c exclusivelyed the functional income statement. It is an income statement prep bed in the multiple- whole step or single step income statement format which conforms to Generally Accepted Accounting Principles (GAAP) and can be used for external financial reporting. The main difference between the two is that the contribution income statement list variable costs 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 further if for internal decision making purposes.B. What is the difference between denseness cost and variable costing?Absorption costing is a costing method where product cost includes all the costs to acquire products and get them ready to sell regardless of whether the costs are variable or fixed. Generally Accepted Accounting Principles requires business to use absorption costing for financial accounting. Variable 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 Caterpillar uses absorption costing to determine the cost of manufacturing, its product cost includes the direct material, direct labor, variable manufacturing overhead, and fixed manufacturing overhead cost incurred to make the bulldozer. These costs are added to enrolment and they are not expensed as cost of goods sold until the bulldozer is sol. However, when Caterpillar uses variable costing, product cost, includes only direct material, direct labor, and variable manufacturing overhead costs. below 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 like it does other period cost much(prenominal) as sell and administrative expense.F. What is the contribution margin ratio and how does it differ from the contribution margin?Contribution 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 companys 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 compute by di viding the total contribution margin by total sales or by dividing the per unit contribution margin by per unit selling prices.