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Generally Accepted Accounting Principles EssayA. What is the contravention between a component part income statement and a traditional income statement?Contribution income statement is an income statement that classifies terms by behavior (fixed cost and changeable cost). Traditional income statement is sometimes called the functional income statement. It is an income statement prepared in the multiple-step or single step income statement format which conforms to Generally Accepted Accounting Principles (GAAP) and can be apply for external financial reporting. The main exit between the two is that the percentage income statement list uncertain costs first, followed by fixed costs. Keeping in mind that GAAP and does not permit businesses to use the contribution income statement for financial accounting it is used only for internal decision making purposes.B. What is the difference between absorption cost and variable costing?Absorption costing is a costing method where p roduct cost includes all the costs to create products and get them ready to sell regardless of whether the costs are variable or fixed. Generally Accepted Accounting Principles requires business to use absorption costing for financial accounting. Variable costing is a method of costing where only the costs to acquire products or to get them ready to sell that vary with issue are treated as product costs. In other words, only variable product costs are treated as product costs. For manufactures, the difference between absorption costing and variable costing is significant.For example, when Caterpillar uses absorption costing to determine the cost of manufacturing, its product cost includes the direct material, direct labor, variable manufacturing hit, and fixed manufacturing overhead cost incurred to make the bulldozer. These costs are added to inventory and they are not expensed as cost of goods sold until the bulldozer is sol. However, when Caterpillar uses variable costing, pro duct cost, includes only direct material, direct labor, and variable manufacturing overhead costs. Under variable costing all of Caterpillars fixed manufacturing overhead cost is treated as period cost. When Caterpillar uses variable costs are added to inventory (direct material, direct labor, and variable manufacturing overhead). Under variable costing, Caterpillar expenses fixed manufacturing overhead as it is incurred just like it does other period cost such as selling and administrative expense.F. What is the contribution margin ratio and how does it differ from the contribution margin?Contribution margin is the amount remaining after all variable costs have been deducted from sales revenue. It is an important piece of information for managers, because it tells them how a good deal of their companys original sales dollars remain after deducting variable cost. Contribution margin ratio is the contribution margin expressed as a percentage of sales. Contribution margin ratio can b e calculate by dividing the total contribution margin by total sales or by dividing the per unit contribution margin by per unit selling prices.