Which of the following statements concerning income statement profitability measures is most correct?
A. Net income is referred to as the "top line" of the income statement.
B. Net income measures total profitability as defined by tax accounting (IRS) rules.
C. In not-for-profit businesses, the entire amount of net income is reinvested in the business.
D. Many organizations report both operating income and net income.
E. Statements A., B., and C. are all correct.
Ans: D. Many organizations report both operating income and net income.
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(40 min) Absorption versus variable costing
Regina Company manufacturers a professional-grade vacuum cleaner and began operations in 2014. For 2014, Regina budgeted to produce and sell 20,000 units. The company had no price, spending, or efficiency variances and writes off production-volume variance to cost of goods sold. Actual data for 2014 are given as follows: 1. Prepare a 2014 income statement for Regina Company using variable costing. 2. Prepare a 2014 income statement for Regina Company using absorption costing. 3. Explain the differences in operating incomes obtained in requirements 1 and 2. 4. Regina's management is considering implementing a bonus for the supervisors based on gross margin under absorption costing. What incentives will this bonus plan create for the supervisors? What modifications could Regina management make to improve such a plan? Explain briefly.
According to an ABC system, A8 is ________ under the traditional cost system
A) undercosted B) overcosted C) fairly costed D) accurately costed