The Owner of a Small Retail Business Asks,"Why Do I

question 67

Essay

The owner of a small retail business asks,"Why do I need cost accountants? My CPA produces financial statements,which are sufficient for me to discover my costs.Look at my Income Statement.I expect sales to increase by 10% next year,so I am planning on a 10% increase in profits.I don't need a cost accountant to tell me that."
$\begin{array}{c}\text {Income Statement for the Year}\\\text {Ending December 31}\\\begin{array}{|l|}\hline \text {Sales Revenue}\\\hline \text {Cost of Goods Sold}\\\hline \text {Gross Margin}\\\hline \text {Selling Costs}\\\hline \text {Administrative Costs}\\\hline \text {Profit betore Taxes}\\\hline \end{array}\begin{array}{l|}\hline \$ 457,234 \\\hline\underline{296,348}\\\hline160,886\\\hline (76,234) \\\hline\underline{(62,350) }\\\hline\underline{\$ 22,302} \\\hline\end{array}\end{array}$
Use your knowledge of the concept of differential costs and explain why a cost accountant would question the conclusion that a 10% increase in sales would yield a 10% increase in profit.

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Definitions:

Creative Process

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Graham Wallas

A social psychologist who proposed a four-stage model of the creative process: preparation, incubation, illumination, and verification.

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