Which of the Following Is an Argument in Favour of a GAAP

question 20

Multiple Choice

Which of the following is an argument in favour of a GAAP body of knowledge that is more prescriptive, or rules-based?

• A) It always emphasizes communicating the best information for users.
• B) The body of knowledge becomes significantly smaller and therefore easier to manage.
• C) It may be easier to defend how to account for a particular item.
• D) There is a tendency for companies to interpret guidelines loosely, and thus account for items inconsistently.

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Definitions:

Fixed Expenses

Costs that remain constant regardless of the level of goods or services produced, such as salaries and rent.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes towards covering fixed costs and generating profit.

Contribution Format

A type of income statement where costs are segregated into variable and fixed, highlighting the contribution margin.

Contribution Margin Ratio

The ratio of Contribution Margin to Sales Revenue, indicating the percentage of each sales dollar remaining after variable costs are deducted.