Answer the following statements true (T) or false (F)

Question

1. The traditional income statement format is prepared under absorption costing.
2. Under absorption costing, all product costs are first recorded as assets in inventory accounts, and later
transferred to the Cost of Goods Sold account when sold.
3. Variable costing is used for external reporting purposes, and absorption costing is used for internal
decision-making purposes.
4. Contribution margin is calculated by deducting the total cost of goods sold from sales revenue.
5. The traditional income statement format calculates operating income as gross profit minus selling and
administrative expenses.

Answer 1

1. TRUE
2. TRUE
3. FALSE
4. FALSE
5. TRUE