Multiple Select QuestionSelect all that applyMakum Company is using a traditional (absorption) costing system. Which of the items below would you see on Makum's income statement?Multiple select question.contribution marginnet incomegross profitcost of goods soldvariable expenses
Question
Multiple Select QuestionSelect all that applyMakum Company is using a traditional (absorption) costing system. Which of the items below would you see on Makum's income statement?Multiple select question.contribution marginnet incomegross profitcost of goods soldvariable expenses
Solution
In a traditional (absorption) costing system, the following items would typically appear on Makum Company's income statement:
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Net Income: This is the final profit or loss the company makes after all expenses, costs, and taxes are deducted from the total revenue.
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Gross Profit: This is calculated by subtracting the cost of goods sold from the total revenue. It shows the profit made after deducting the direct costs associated with producing the goods sold by the company.
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Cost of Goods Sold (COGS): This is the direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the goods along with the direct labor costs used to produce the goods.
The following items are typically not included in an income statement under a traditional costing system:
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Contribution Margin: This is typically used in cost-volume-profit analysis and marginal costing, not in traditional costing. It is calculated as sales revenue minus variable costs.
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Variable Expenses: These are costs that change in proportion to the volume of goods or services that a business produces. In traditional costing, these costs are often absorbed into the cost of goods sold and are not separately listed on the income statement.
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