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acc560 week 4 discussion 2

acc560 week 4 discussion 2 - “functional” format –...

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Discuss the features in a CVP income statement that make it more useful for management  decision making than the traditional income statement   prepared for external users. A CVP income statement is used as an internal planning and decision-making tool. Its emphasis on costs by behavior  facilitates CVP analysis.  CVP income statement is also very useful in appraising management performance, in  segmented reporting of profit data, and in budgeting.  Moreover, the CVP income statement helps manager to  organize data pertinent to all kinds of special decision such as product line analysis, use of scarce resource, and  make or buy analysis. As for the traditional income statement, it is not organized in term of cost behavior.  Instead, it is organized in a 
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Unformatted text preview: “functional” format – emphasizing the functions of production, administration, and sales in the classification and presentation of cost data. No attempt is make to distinguish between variable or fixed costs included under each function heading such as cost of goods sold, selling expenses, and administrative expense. Therefore, it does not report a contribution margin. In sum, the traditional income statement has serious limitations when used for management decision making, because the manager needs cost data organized in a format that will facilitate carrying out planning, control, and decision-making responsibilities. The CVP income statement has been developed in response to this need....
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