Multiple Choice
Which of the following best describes the main difference on the income statement between a manufacturer and a merchandiser?
25
views
4. Merchandising Operations
Service Company vs. Merchandising Company
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
An income statement focusing on product and period costs has been prepared using a(n):
A
single-step income statement
B
cost of goods sold format
C
contribution margin format
D
absorption costing approach
Verified step by step guidance1
Understand the concept of contribution margin format: The contribution margin format separates costs into variable and fixed categories, emphasizing the relationship between sales, variable costs, and contribution margin. This format is useful for decision-making and analyzing profitability.
Review the absorption costing approach: Absorption costing includes all manufacturing costs (both variable and fixed) in the cost of goods sold. It contrasts with variable costing, which only includes variable manufacturing costs in the cost of goods sold.
Identify the structure of the contribution margin income statement: The format typically starts with sales revenue, subtracts variable costs to calculate the contribution margin, and then subtracts fixed costs to determine net income.
Compare the contribution margin format to other formats: Unlike the single-step income statement or cost of goods sold format, the contribution margin format focuses on separating costs by behavior (variable vs. fixed) rather than function (product vs. period costs).
Apply the contribution margin format to the problem: Reorganize the income statement by categorizing costs into variable and fixed components, calculate the contribution margin, and subtract fixed costs to arrive at net income.
Related Videos
Related Practice
Service Company vs. Merchandising Company practice set
Problem sets built by lead tutorsExpert video explanations