This income statement reflects sales of 100,000 mice. Direct materials cost $5.00 per mouse, direct labor was $1.00 per mouse, and sales commissions were $1.50 per mouse. Advertising costs totaled $200,000. All manufacturing overhead costs are fixed.
A. Develop a variable cost income statement.
B. Why do traditional income statements have to conform to accounting rules such as GAAP and IFRS?
C. Managers sometimes divide cost of goods sold from a traditional income statement by the quantity of units sold to calculate an average production cost per unit. They then multiply the average cost per unit by an estimated future production volume to estimate incremental
future costs. Why is this method likely to produce a poor-quality cost estimate?