01 Jul Alternative Income Statements Accounting Discussion Responses
Alternative Income Statements
Please respond to the following discussion question. Your response should fully address all elements of the question and be a minimum of 200 to 300 words long. The response and two replies to other posts in this string are due by Saturday night, 11:59 Phoenix server time. See the Instructor Policies in the Resource Folder for a complete description of class participation requirements.
Absorption versus variable income statements are discussed in Appendix A of Chapter 19. These statements are also called alternative income statements in the accounting profession.
What are the two types of alternative income statements? What are some examples of how alternative income statements are used in decision making?
What is cost behavior and how does it impact a financial analysis? What processes does your company ora previous employer use to analyze cost behavior?
Important Note: If you search on “alternative income statements” on the Internet you will find articles about single and multi step income statements. These are not the types of incomes statements we are studying. These are different formats for financial statement income statements which we studied in weeks 1 and 2. You need to discuss the correct alternative income statements in this string to receive credit for participation for the post.
Comment on these two post in 100 word count each
The income statement is a financial statement that reports on expenses, revenue and profit of a business. While searching on the internet you may find many types of income statements. But we concern most about the correct types of alternative income statements that includes traditional income statement and contribution margin income statement. The traditional income statement is also known as profit and loss statement and it represents that at what extent the company generates profit in a given period of time. It explains how a business incurs expenses and generates revenue through operating and non-operating activities. It involves full costing or absorption costing which means fixed and variable costs are included in the calculation of CoGS. In contribution margin income statement, contribution margin is determined by deducting variable expenses from sales and fixed expenses are deducted from contribution margin to find net profit or loss.
The contribution margin income statement helps in decision making by determining the breakeven of different product categories and individual products. Contribution margin shows that the amount is available to cover fixed costs and generate a profit or loss while traditional income statement is used for external reporting.
Cost behavior is about the sensitivity of costs to changes in sales or production volume. It is a change in the company’s costs as the activities of the company change. When a change occurs in the volume of activities occur then a change also occur in fixed, variable or fixed costs. It is important for the accountants to understand the changes in cost behavior and how it impacts the activities. It helps to make a budget, to analyze whether the cost is decline or increases and help in the selection of alternatives. I worked in a firm that produces jets and they get services from different other companies for making components of those jets. They use cost behavior analysis for determining costs for future projects and variable costs for those future projects.
The weeks reading has been very informative, the alternative income statements that companies use and the different costing methods that is used in each. Like the traditional income statement uses the absorption costing method this is mostly used for external purposes. All liabilities in manufacturing product cost are figured in materials, labor to make the product, all overhead both fixed and variable these are all figured in. It is hard to see where to cut cost when sales are down. The contribution margin income statement is more accurate because it adds all the variables and then subtracts all the fixed expenses to give an net profit or loss for the company.
In the traditional income statement is used by most companies and is the method that is required by the general accepted accounting principles, because this statement is for external purposes to show profit or loss. It is however hard to pin point where a change in the cost might be because all the cost are absorbed in the product. In the contribution margin income statement is used to get a better picture by the company’s internal management if they want to find out the specific area that they are loosing money. they can also see the different sales to net income varies and the exact area it is having those differences.
At my current job they look at cost behavior in many different ways we have a lot of checks and balances and rightfully so. We have to look at the players play and see if they have been over comped or under-comped. We take their play and do a certain percentage off their actual win. First we deduct all the previous comps, free play given for the reporting period.
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