A traditional GAAP income statement does not help managers predict the financial results of their decisions.Which of the following is a reason for this shortcoming?
A)The GAAP statement is based on cost function rather than cost behavior.
B)The GAAP statement is based on classification rather than function.
C)The GAAP statement is based on cost behavior rather than cost function.
D)The GAAP statement is based on function rather than classification.

Question

Quizplus · Accepted Answer

A traditional GAAP income statement is based on cost behavior rather than cost function. This means that it does not provide information on how costs will change based on different levels of activity, which is necessary for predicting the financial outcomes of managerial decisions. Cost function analysis, on the other hand, focuses on how costs will change based on changes in activity levels, making it more useful for predicting financial outcomes.

A Traditional GAAP Income Statement Does Not Help Managers Predict